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Builders’ outlook goes from dim to doom

By Derek Kravitz
Associated Press

Homebuilders' optimism continues to diminish after an index that measures sentiment for the industry fell three points in June to 13. It's the lowest level in nine months, and only five points above the lowest recorded reading, in January 2009. (AP Photo by Seth Perlman)

Washington — The outlook among homebuilders has been grim all year. This month, it became grimmer.

An index that measures builders’ sentiment for their industry fell three points in June to 13, according to a National Association of Home Builders report. That’s the lowest level in nine months. And it’s just five points above the lowest reading on record, in January 2009. That’s when the home market was absorbing the brunt of the housing bust.

Any reading below 50 indicates negative sentiment about the market. The index hasn’t reached that level since April 2006, the peak of the housing boom.

Builders are finding it “extremely difficult to construct a new home and sell it at a price that covers the costs,” said Bob Nielsen, chairman of the homebuilders’ trade group and a builder from Reno, Nev.

In addition, would-be buyers are having trouble selling their existing homes because of falling prices and tougher lending requirements. Many also are worried about the outlook for the economy.

An index that gauges sales expectations over the next six months dropped four points, to 15. That matched the lowest level on records dating to 1985.

The builders’ monthly index is calculated from a survey that characterizes sentiments about current and future sales as “good,” ”fair” or “poor.”

Last year, the number of people who bought new homes hit its lowest level on records dating nearly a half-century. This year only is looking marginally better.

The seasonally adjusted annual pace of new-home sales in April was 323,000, less than half the 700,000 units annually that economists consider healthy.

Fewer homes mean fewer jobs. Each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the builders’ trade group.

Builders cited two chief reasons for the waning confidence in their business: competition from foreclosures and properties at risk of foreclosure, which sell at an average 20 percent discount, and rising costs of building materials, such as roofing, copper and vinyl siding.

The outlook among builders is uneven across the country. In the Northeast, the index rose two points in June. But it fell two points in the South, three points in the Midwest and four points in the West.

More from the NAHB

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