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June 18, 2007 - U.S. Homebuilder Confidence Declines to 16-Year Low

June 18, 2007
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Confidence among U.S. homebuilders fell this month to the lowest since February 1991 as interest rates climbed and delinquencies surged, Bloomberg.com reports.

The National Association of Home Builders/Wells Fargo index of sentiment declined to 28 this month from 30 in May, the Washington-based association said today. Readings below 50 mean most respondents view conditions as poor. Economists surveyed by Bloomberg News forecast the gauge to stay unchanged this month.

Homebuilders including Hovnanian Enterprises Inc. are losing money as they cut prices to stem a slide in sales amid stricter standards for getting mortgages. Builders have scaled back projects to work off bloated inventories, a sign housing construction will weigh on growth for the rest of the year, economists say.

“There will be continuing declines in home building through the second half of this year,” said Robert Mellman, an economist at JPMorgan Chase Corp. in New York. “If rates hadn’t gone up, we would have expected it would have stabilized. We’ve put off the stabilization in housing until early next year.”

JPMorgan Chase correctly forecast the drop in the homebuilding index. The bank’s economists now project residential construction will fall at a 7.5-percent annual rate in the second half, compared with a previous forecast of a 2.5-percent drop. The median forecast of 35 economists surveyed by Bloomberg was for the index to stay at 30. Predictions ranged from 28 to 32.

Builders are asked in the survey whether sales are “good,” “fair”' or “poor” and to gauge prospective buyers’ traffic.

The group’s measure of single-family home sales fell to 29 from 31. The index of traffic of prospective buyers slipped to 21 from 22. A gauge of sales expectations for the next six months declined to 39 from 41.

“The crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably,” NAHB Chief Economist David Seiders said in a statement. “We expect housing to exert a drag on economic growth during the balance of 2007.”

Today’s report showed confidence fell in three of the four U.S. regions. The index declined to 27 from 32 in the West, to 19 from 22 in the Midwest and to 32 from 33 in the South. It rose to 35 from 32 in the Northeast.

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