Homebuilders Getting More Pessimistic

By:: Kara Johnson | July 19, 2010

Homebuilder confidence fell in June to its lowest level in over a year, as consumer demand for housing continued to shrink following the end of the homebuyer tax credit.

The National Association of Homebuilders/Wells Fargo Housing Market Index fell two points in July, to a score of 14 on a 100-point scale where lower numbers indicate a poorer outlook. It’s the lowest the index has been since April 2009 and the second consecutive monthly decline.

"We continue to see a lull in home buying activity following the expiration of the federal home buyer tax credit program, as many of the sales that would have occurred this summer were likely pulled forward to meet that program's deadline," said NAHB Chairman Bob Jones. "In addition, builders are reporting continuing consumer hesitancy regarding home purchases due to uncertainty in the overall economy and job markets."

David Crowe, NAHB chief economist, said the lull in sales following the end of the homebuyer tax credit was turning out to be longer than expected, due to a sluggish economic recovery. He said tight consumer credit and competition from distressed and foreclosed homes are also causes of pessimism among builders.

At the same time, he predicted that demographic trends, along with low mortgage interest rates and housing prices, will spur consumer demand for housing by year’s end and that 2010 will end up posting a 10 percent gain in new homes sales over 2009.

Each of the component elements the index is based on declined in June. Homebuilders surveyed reported declining perceptions of current single-family home sales, sales expectations over the next six months and traffic of prospective buyers.

On a regional basis, builders in the Northeast had a far more favorable outlook than the rest of the nation, with the regional housing index rising to 23 in June, up from 16 in May. The outlook for the Midwest remained nearly flat at 15 in June, while the South and West posted 5-point declines, to 14 and 9, respectively.

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