The NAHB/Wells Fargo Housing Market Index remained unchanged at a dismal 13 in September, repeating the August level.  Two of the three components of the index, present sales and expectations for the next six months, also remained unchanged at 13 and 18 respectively.  The measure of traffic fell one point to 9, the lowest level since March 2009.

The flattening does end a steady decline from 22 in May when the home buyer tax credit expired.  The lull now is not likely to be from demand shifted forward to take advantage of the credit, but rather a soft spot in the economy.  New job formations slowed in the second and third quarters and both businesses and consumers pulled back on purchases.  The uncertainty about economic growth has become the new housing retardant even with historically low interest rates, leveling house prices and pent up demand from unformed households.

The housing market will continue to suffer from excess existing home supply as more home owners default and lenders foreclose. Without additional demand, this will continue to keep downward pressure on home prices and consumers’ willingness to purchase.  However, the worst markets are concentrated in a relatively small number of states, primarily the states that saw significant price increases (California, Nevada, Arizona and Florida) or economic stress (Michigan).  States in the energy and farm belt did not see price run ups or over-production and are coming back to a normal level of housing starts within the next year.  Except for Texas, these states are relatively small in housing production and hence the US housing recovery is being driven by small contributions from many low-population states and is lacking contribution from the large states that made up the bulk of production in good times.

Slow consumer response to the positive housing conditions and continue foreclosures in some large states will contribute to a protracted housing recovery.