Homebuilder Confidence in U.S. Falls to One-Year Low
The retreat in home sales following the April 30 tax credit deadline is lasting longer than projected. Photographer: Mike Mergen/Bloomberg
Builders in the U.S. turned more pessimistic in July than forecast, a sign the expiration of a government tax credit will depress home construction.
The National Association of Home Builders/Wells Fargo confidence index dropped to 14 this month, the lowest level since April 2009, from 16 in June, data from the Washington- based group showed today. Readings lower than 50 mean more respondents said conditions were poor.
The retreat in sales following the April 30 expiration of a deadline to sign purchase agreements and qualify for a tax credit worth as much as $8,000 is lasting longer than projected, the report said. With mounting foreclosures adding to housing inventory and unemployment forecast to end the year at 9.5 percent according to economists surveyed by Bloomberg News, a housing recovery will take time to develop.
“The housing sector is going to be in a hangover for a few months and it looks like it will be quite a nasty one,” said David Sloan, a senior economist at 4Cast Ltd. in New York, who correctly forecast the decline. “This will weigh on growth in the third quarter and well into the fourth quarter as well.”
Stocks trimmed earlier gains after the report. The Standard & Poor’s 500 Index rose 0.3 percent to 1,067.92 at 10:11 a.m. in New York. The S&P Supercomposite Homebuilder Index fell 0.1 percent to 223.27.
Worse Than Forecast
The index was forecast to fall to 16 from a previously reported 17 in June, according to the median of 48 projections in the survey. Economists’ estimates ranged from 14 to 18. The gauge, which was first published in January 1985, averaged 15 last year.
The builders group’s index of current single-family home sales fell to 15 from 17. The gauge of buyer traffic dropped to 10 from 13 the prior month. A measure of sales expectations for the next six months decreased to 21, the lowest level since March 2009, from 22.
“We continue to see a lull in home buying activity following the expiration of the federal home buyers tax credit program as many of the sales that would have occurred this summer were likely pulled forward to meet the program’s deadline,” NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan, said in a statement. “In addition, builders are reporting continuing hesitancy regarding home purchases due to uncertainty in the overall economy and job markets.”
Housing Slump
Housing starts fell 10 percent in May after the expiration of the contract-signing deadline the prior month.
Starts probably dropped another 2.9 percent to a 576,000 pace in June, according to economists surveyed before a Commerce Department report tomorrow.
Purchases of existing homes declined 9.9 percent in June to a 5.1 million annual level, economists forecast a report from the National Association of Realtors will show on July 22.
Builders compete with inventories of existing homes being swelled by mounting foreclosures. Home seizures climbed 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.
Under the government’s tax incentive program, buyers had to sign contracts by the end of April and close on homes by June 30 to qualify for the credit. The deadline for closings was extended this month until the end of September.
Fewer Applications
In another sign of flagging demand, the number of mortgage applications to purchase properties dropped in the second week of July to the lowest level since 1996, according to figures from the Mortgage Bankers Association.
The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to gauge the outlook for the next six months.
The drop in confidence was led by builders in the West, where the gauge fell to 9 from 14, and the South, where it decreased to 14 from 19. The builder index in the Midwest rose to 15 from 14, and jumped to 23 from 16 in the Northeast, the smallest region.
Lennar Corp.’s home sales were running 20 percent to 25 percent lower last month than a year earlier as the expiration of the tax credit sapped demand, Chief Executive Officer Stuart Miller said June 24.
“The entire market knew there’d be a slowdown as we came off the tax credit,” Miller said on a conference call with investors. “It’s just that the reality of it doesn’t feel good.”
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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