January 21, 2009 - NAHB/Wells Fargo Housing Market Index, Washington D.C.

January home builder sentiment sinks to a new low

January home builder sentiment sinks to a new low

Confidence among U.S. homebuilders fell to a record low in January, a sign the housing slump will extend well into the new year and contribute to deepening the recession.

The National Association of Home Builders/Wells Fargo index of builder confidence dropped to 8, lower than forecast, from 9 in December, the Washington-based association said today. A reading below 50 means most respondents view conditions as poor.

Builders’ attempts to reduce the property glut by slashing construction have been hampered by a jump in foreclosures that’s returning homes to the market. Prices and sales are likely to slide further as banks stay reluctant to lend and job losses discourage buyers.

“Builders are just reacting to the reality,” said Karen Cordes, an economist at Scotia Capital Inc. in Toronto, who accurately forecast the drop. “Foreclosures are rising and housing activity will continue to decline at least until mid- 2009.”

The Standard and Poor’s Supercomposite Homebuilding Index recovered earlier losses, rising 2.6 percent to close at 191.92, as financials led a rebound in stocks on speculation President Barack Obama’s plans will shore up banks. The builder index lost almost a third of its value last year.

The builder confidence index was forecast to hold at 9 this month, according to the median forecast of 39 economists surveyed by Bloomberg News. Projections ranged from 7 to 11. The gauge, which was first published in January 1985, averaged 16 last year.

Components

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. The survey also asks participants to gauge the outlook for the next six months.

The builders group’s index of current single-family home sales dropped to 6 this month, from 8 in December. The gauge of buyer traffic rose to 8 from 7, and a measure of sales expectations for the next six months increased to 17 from 16.

Confidence fell in two of four regions in January. The decline was led by the West, which plunged to 4 from 7, followed by the Northeast, where it dropped to 10 from 11. Builder confidence held at 6 in the Midwest and rose in the South to 11 from 10.

“Clearly, conditions in the nation’s housing market aren’t getting any better,” NAHB chairman Sandy Dunn, a builder from Point Pleasant, West Virginia, said in a statement today. “The Obama Administration and the new Congress have a tremendous opportunity and responsibility to enact legislation that can spur home buyer demand and jump-start the national economy.”

Obama’s Plan

Obama will use up to $100 billion of the remaining half of the $700 billion financial-rescue funds to ease the mortgage- foreclosure crisis and will limit the money to the finance and housing industries, Lawrence Summers, his top economic adviser, said in a letter to lawmakers last week.

Foreclosure filings jumped 81 percent in 2008 as falling house prices, tighter mortgage lending and job losses battered property owners, according to Irvine, California-based RealtyTrac Inc. More than 2.3 million properties got a default or auction notice, or were seized by lenders.

The Federal Reserve this month bought $23.4 billion of Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds to help unclog credit. Fannie Mae and Freddie Mac, government-chartered mortgage companies, were placed under U.S. control in September. The Fed also has cut the benchmark interest rate to as low as zero.

Lower Rates

There is some relief on borrowing costs, even as lenders are wary of extending credit. The average rate on a 30-year fixed- rate loan fell to 4.89 percent earlier this month, the lowest level since records began in 1990, the Mortgage Bankers Association reported.

American builders probably broke ground in December on the fewest houses on record, and permits, a sign of future construction, also plunged to a record low, Commerce Department figures may show tomorrow. Housing starts fell to an annual rate of 605,000, the lowest level since record-keeping began in 1959, according to the median forecast of economists in a Bloomberg survey.

Companies are braced for a difficult 2009. KB Home, the fourth-largest U.S. homebuilder, reported a fourth-quarter loss as its average home price fell 6.4 percent and orders declined 50 percent.

“The housing industry continues to confront unprecedented downward pressure,” Jeffrey Mezger, chief executive officer of the Los Angeles-based company, said on a conference call this month. “These conditions persist nationally with no visible signs of lessening in the near term.”

Original Story - Bloomberg