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Homebuilder Confidence in U.S. Unexpectedly Drops

Homebuilder Confidence in U.S. Unexpectedly Drops
A new single family home under construction in Thornton, Colorado. Photographer: Matthew Staver/Bloomberg

Builders in the U.S. unexpectedly turned pessimistic in August, a sign the expiration of a government tax credit will keep depressing home construction.

The National Association of Home Builders/Wells Fargo confidence index dropped to 13 this month, the lowest level since March 2009, from 14 in July, data from the Washington- based group showed today. Economists forecast a reading of 15, according to the median estimate in a Bloomberg News survey. Readings lower than 50 mean more respondents said conditions were poor.

Homebuilders have struggled to increase sales following three years of declining demand and the more recent expiration of a government tax incentive for homebuyers. With mounting foreclosures adding to inventory and unemployment forecast to end the year at 9.5 percent, a housing recovery will take time to develop.

“The housing market still has many fundamental challenges that are likely to keep it depressed,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “The problem continues to be oversupply. There are just far too many homes.”

Projections in the Bloomberg survey of 44 economists ranged from 13 to 17. The gauge, which was first published in January 1985, averaged 15 last year.

Stocks were little changed, while Treasury securities rose after the report. The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,080.07 at 10:22 a.m. in New York. The 10-year Treasury note rose, pushing down the yield to 2.59 percent from 2.67 percent.

Home Sales

The builders group’s index of current single-family home sales fell to 14 in August from 15. The gauge of buyer traffic held at 10. A measure of sales expectations for the next six months decreased to 18, the lowest since March 2009, from 21.

“Builders are expressing the same concerns that they are hearing from consumers right now, particularly the sense that the overall economy and job market aren’t gaining any traction,” NAHB Chairman Bob Jones, a homebuilder from Bloomfield Hills, Michigan, said today in a statement.

Construction of new homes probably rose 2 percent to a 560,000 pace in July, according to economists surveyed before a Commerce Department report tomorrow. Housing starts fell 5 percent in June to a 549,000 rate.

Purchases of existing homes declined 5.1 percent in June to a 5.37 million annual level, the National Association of Realtors said last month.

Mounting Foreclosures

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 month, 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 until the end of September.

Donald Tomnitz, chief executive officer of D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, said he welcomes the end of federal homebuyer tax credits.

“I don’t want the tax credit to be re-enacted or be recreated or extended,” Tomnitz said on an Aug. 3 conference call with investors. “We want to get back to a normalized market.”

Today’s 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 Northeast, where the measure dropped by 6 points. The builder indexes in the South and West both fell by 1 point. The gauge in the Midwest was unchanged.

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