U.S. Homebuilder Confidence Unchanged in December Amid Depressed Demand

Confidence among U.S. homebuilders was unchanged in December from a month earlier, indicating residential construction will stay near depressed levels.

The National Association of Home Builders/Wells Fargo index of builder confidence held at 16, matching the median forecast of economists surveyed by Bloomberg News, data from the Washington-based group showed today. Readings below 50 mean more respondents said conditions were poor.

Builders from Beazer Homes USA Inc. to D.R. Horton Inc. face a market struggling to heal after the end of a homebuyers’ tax credit of as much as $8,000 and, more recently, a rise in mortgage rates. Unemployment near 10 percent threatens to fuel foreclosures that may depress prices and impede recovery in the industry that precipitated the worst recession since the 1930s.

“This confirms the Federal Reserve’s statement yesterday that housing is depressed,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “Builders won’t start to build until they see firm signs of demand. Sentiment will probably grind forward.”

Estimates in the Bloomberg survey of 51 economists ranged from 15 to 18. The gauge, which was first published in January 1985, reached a record low of 8 in January 2009 and averaged 54 in the five years before the recession began in December 2007. The index was also at 16 in December 2009, evidence of the lack of improvement in housing this year.

The builders group’s index of current single-family home sales held at 16 this month. The gauge of buyer traffic decreased to 11 from 12, and a measure of sales expectations for the next six months held at 25.

Unemployment, Foreclosures

“The typical cold-weather slowdown in sales activity is being accentuated by ongoing weakness in the job market, the rising number of foreclosures and short-sales, and very challenging credit conditions for both builders and buyers,” NAHB Chairman Bob Jones, a homebuilder from Bloomfield Hills, Michigan, said in a statement.

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.

Builders in the Northeast showed the only gain in optimism, with the index rising to 24 from 12. The Northeast has a smaller survey sample and is therefore subject to greater month-to-month volatility, NAHB said. Confidence in the Midwest, South and West declined.

Rising foreclosures will weigh on housing prices. Home values are poised to drop by more than $1.7 trillion in 2010, exceeding the $1.05 trillion drop in 2009, according to Seattle- based Zillow Inc., a closely held provider of home price data.

Mortgage Rates

Mortgage rates are also increasing. The average rate on a 30-year fixed mortgage was 4.61 percent in the week ended Dec. 9, up from the record-low of 4.17 percent on Nov. 11, according to Freddie Mac. McLean, Virginia-based Freddie Mac began keeping records in 1971.

The Standard & Poor’s Homebuilder Supercomposite Index has fallen 3.7 percent so far this year through yesterday, in contrast to an 11 percent gain in the broader S&P 500 gauge.

D.R. Horton, the second-largest U.S. homebuilder by revenue, expects 2011 to be “challenging” for the industry, Chief Executive Officer Donald Tomnitz said on a Nov. 12 earnings conference call. Beazer, an Atlanta-based builder of homes for first-time buyers, also is cautious.

“Sustained high unemployment levels and the overhang of foreclosures make it very difficult to predict when and to what extent the housing market will recover,” Ian McCarthy, chief executive officer of Beazer, said on a Nov. 5 conference call with analysts.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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