Homebuilder Confidence in U.S. Slides to Nine-Month Low on Sales Outlook

Confidence among U.S. homebuilders slumped in June to the lowest level in nine months as executives turned more pessimistic on the outlook for sales, a sign that any pickup will take time to develop.

The National Association of Home Builders/Wells Fargo sentiment index unexpectedly fell to 13 from 16 in May, the biggest drop in a year, data from the Washington-based group showed today. The median forecast of economists surveyed by Bloomberg News projected it would hold at 16.

Further declines in real-estate values and more foreclosures in the pipeline mean builders will be hesitant to break ground on projects. Unemployment at 9.1 percent suggests demand for new homes may take years to rebound.

“There is still an abundance of existing homes for sale,” David Semmens, a U.S. economist at Standard Chartered Bank in New York, said before the report. “Homebuilding is not going to make a meaningful addition to the U.S. economy any time soon.”

Other reports today showed factory production rebounded in May and consumer prices rose more than forecast. Figures from the Federal Reserve Bank of New York showed manufacturing in its region unexpectedly shrank in June.

Readings lower than 50 in today’s homebuilder measure mean more respondents said conditions were poor. Projections among the 42 economists surveyed 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.

Components Drop

The builders group’s index of sales expectations for the next six months decreased to 15, matching the lowest level on record, from 19. A gauge of current single-family home sales declined to 13, the lowest since September, from 15.

The index of buyer traffic fell to 12 from 14 in May, the biggest one-month drop since July.

“Builder confidence has waned even further as economic growth has stalled, foreclosures have continued to hit the market and the cost of building a home has risen,” NAHB Chief Economist David Crowe said today in a statement. “Economic growth must pick up in order for housing to gain the momentum it needs to get back on track.”

A report from the Labor Department today showed that the cost of living in the U.S. rose more than forecast in May, reflecting higher prices for everything from autos to hotel rooms and signaling raw-material expenses are filtering through to other goods and services.

Consumer Prices

The consumer-price index increased 0.2 percent, compared with the 0.1 percent median forecast of economists surveyed by Bloomberg. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.3 percent, the biggest increase since July 2008.

The NAHB 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 three of the four regions saw a decrease in confidence this month. The biggest drop was among those in the West, where sentiment fell to the lowest level since December. Confidence in the Midwest declined to the lowest since March 2010, and sentiment in the South fell to a nine-month low.

Confidence rose in the Northeast.

The Commerce Department may report tomorrow that housing starts rose 4.2 percent in May to 545,000 units at an annual rate, according to economists’ forecasts. Starts have moved up from a 518,000 level in February, which was the lowest since a 478,000 pace in April 2009, the weakest on record.

Home Sales

Sales of existing homes, which make up more than 90 percent of the market, fell 4 percent to a 4.85 million annual pace in May, economists surveyed by Bloomberg forecast the National Association of Realtors may report on June 21. Existing home sales have been gaining market share from new homes due to growing demand for lower-priced distressed homes.

Firms like Hovnanian Enterprises Inc. (HOV) are still struggling to turn a profit in the U.S. housing market. The largest homebuilder in New Jersey reported a net loss for the three months ended April 30 that was wider than analysts estimated.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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

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