Builders Are Optimistic - as Usual

On Tuesday, the National Association of Home Builders released the February edition of its Housing Market Index. The HMI rose by two points compared to January, but remains in record-low territory.


Despite the protracted downturn in the housing market, builders have remained steadfastly optimistic. Indeed, they've actually been expecting conditions to improve for the last three years. Take a look at the chart, below, which shows the 'current conditions' and 'expected conditions' components of the HMI.


The 'expected conditions' component of the HMI (which measures builders' expectations for the next six months) has remained roughly ten points higher than the 'current conditions' component since October 2006. Throughout most of the period in question, however, conditions actually deteriorated. Evidently, builders keep expecting the future to be better than the present, but the future keeps receding.

Take What "They Say" with a Grain of Salt

I love this story. Three years ago, the Mortgage Bankers Association announced plans to buy a new, $90 million headquarters building in Washington, D.C. According to Jonathan Kempner, then president and CEO of the Association, "...we have come to the inescapable conclusion that owning our own building was the smartest long term investment for the Association." The Association moved into its new headquarters in June 2008.

On February 5th, 2010 - less than two years after moving in - the MBA sold their building to CoStar Group for $41 million. In so doing, they effectively acknowledged a colossal investment blunder. Plenty of people overpaid for real estate during the boom. But the MBA was supposedly a group of financial experts, who had access to a wealth of intelligence about the real estate market. That's why I cringe whenever someone begins a sentence with the phrase, "They say..."