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We are being reminded today that home builders remain cautious and concerned about prospects for the housing market.  The NAHB Housing Market Index (HMI) declined one point to 15 in June.  According to Bloomberg the median forecast was a reading of 17.  This is the second time in as many trading days that a reading on consumer behavior was less than expected.  Last Friday, consumer sentiment continued to improve in the month of June, although the University of Michigan index rose by less than expected. 

The NAHB index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." Although the outlook for home sales has improved somewhat in recent months, home builders are facing a few headwinds, including: the expiration of the tax credit at the end of November, an upturn in interest rates, and especially the bottleneck in the loan approval process.

Tomorrow we will get another gauge on housing when the Commerce Department releases housing starts.  The median forecast is for 485,000 versus the prior reading of 458,000.  Given the supply of unsold homes and the number of homes in foreclosure, and now the sequential decline in the HMI, why are housing starts going to improve sequentially?  In fact we could be reading tomorrow that builders broke ground on the fewest homes on record in May!  

Howard W. Penney

Managing Director