Homebuilder Confidence Fell This Month on Sales Outlook, NAHB Index Shows

Confidence among U.S. homebuilders fell in April, led by a decline in the outlook for sales, a sign the residential construction market may languish near record-low levels.

The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, data from the Washington-based group showed today. A measure of sales expectations for the next six months dropped to the lowest level since October, and a gauge of current purchases also fell. Readings below 50 mean more respondents said conditions were poor.

Housing construction is one of the weakest parts of the economic recovery as a glut of distressed properties on the market competes with new homes. The prospect of more foreclosures in the pipeline, declining prices and an unemployment rate forecast to average 8.7 percent this year means any recovery in housing may take years to develop.

“Homebuilders are finding it difficult to compete with deeply discounted existing properties,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “The backdrop for builders is still negative.”

The measure, which has been at 16 in five of the last six months, was less than the median forecast of 17 in a Bloomberg News survey. Projections among the 47 economists surveyed ranged from 16 to 20.

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.

Sales Expectations

The builders group’s index of sales expectations for the next six months decreased to 23 from 26, while a gauge of current single-family home sales declined to 16 from 17, the report showed. The index of buyer traffic rose to 13 from 12 last month.

“The spring home-buying season is getting off to a slow start due to persistent concerns about home values as more foreclosures seem to be hitting the market, increasingly restrictive lending requirements for home buyers and builders, and the slow pace of economic recovery,” David Crowe, NAHB chief economist, 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 two of the four regions saw an increase in confidence this month. The index rose to 20 in the Northeast from 18, and to 14 in the Midwest from 12. It fell to 15 from 19 in the South and held at 17 in the West.

Housing Starts

The Commerce Department may report tomorrow that housing starts rose 8.6 percent in March to 520,000 houses at an annual rate, failing to make up for the 23 percent plunge a month earlier, according to economists’ forecasts. Starts reached a record low of 477,000 in April 2009.

New-home sales fell to a record-low annual rate of 250,000 in February, the Commerce Department reported on March 23. The median price dropped to the lowest level since December 2003.

Sales of existing homes, which make up more than 90 percent of the market, rose 2.5 percent to a 5 million annual pace in March, economists surveyed by Bloomberg forecast the National Association of Realtors may report in two days. Existing-home sales have been gaining market share from new homes due to distressed pricing.

The average rate on a 30-year fixed loan increased to 4.98 percent the week ended April 8, the highest since Feb. 18, according to the Mortgage Bankers Association. Borrowing costs have climbed since reaching 4.21 percent in October, the lowest since the group’s records began in 1990.

Home Foreclosures

Even with home seizures currently clogging the pipeline as banks struggle to implement new guidelines, foreclosure filings will climb about 20 percent in 2011, reaching a peak for the housing crisis, RealtyTrac said Jan. 13.

KB Home (KBH), the Los Angeles-based homebuilder that targets first-time buyers, this month reported a bigger-than-expected loss for the quarter ended Feb. 28 as orders plunged.

“We do not anticipate a net profit for 2011,” President and Chief Executive Officer Jeffrey Mezger said during a conference call with analysts on April 5. “The economy is continuing to improve. Even so, this recovery has yet to include significant job growth and has not spilled over into housing.”

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

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