The plunge in sentiment delivered a timely exclamation point to all the other signs of a slowdown I have been observing and describing for much of this year. It stands well by itself without the additional context of the rest of November’s reports on housing data.

In the April housing market review, I explained why I would not have thought much of March’s slight decline in the Housing Market Index (HMI). At 70, the HMI was still higher than it was for most of 2017. For July, the HMI stayed at 68 for the second straight month. However, the HMI dropped another point in August and stayed at 67 for September. For two straight months, the NAHB cleverly called 67 a “solid reading.” I was circumspect about this reading given it was the low for 2018, and I stayed skeptical in the October Housing Market Review even with the HMI increasing by one point at that time. As a reminder, I took the NAHB’s quote as evidence that a housing slowdown was underway (emphasis mine):

“Favorable economic conditions and demographic tailwinds should continue to support demand, but housing affordability has become a challenge due to ongoing price and interest rate increases. Unless housing affordability stabilizes, the market risks losing additional momentum as we head into 2019.”

The slowdown showed up in the November HMI which dropped from 68 in October to 60, the lowest reading since June, 2016. Not only is the 12% drop the largest since an 18% drop in February, 2014, but also the 14% year-over-year plunge is the largest since a 19% year-over-year decline in June, 2011. The last time the HMI hit a low this late in the year was in the depths of the financial crisis. Still, despite all these bad milestones, the 68.1 average HMI year-to-date is still just a bit higher than 2017’s average HMI of 67.8. Thus, the NAHB can find solace in observing: “Despite the sharp drop, builder sentiment still remains in positive territory.” “Positive” means it is above 50. However, clinging to that positive sign is near meaningless since HMI was last below 50 in June, 2014, just two years or so after the housing trough and in the middle of a rapid recovery in sentiment. The components of the HMI would have to suffer significant blows from current levels to drive HMI below 50.