August 16, 2010

NAHB/Wells Fargo Home Builder Index Drops Again in August

Builders show lack of confidence in housing market for third consecutive month

For the third month in a row this summer, builders surveyed in the National Association of Home Builders (NAHB)/Wells Fargo housing market index for August expressed a lack of confidence in the newly built, single-family home market.

The housing market index released Monday, August 16 declined one point to 13, its lowest level since March 2009.

"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," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan, in a news release. "Many continue to report that problems with inaccurate appraisals, competition from the large number of distressed properties on the market, and tight consumer lending conditions are causing them to lose potential sales."

Last month, the NAHB index dropped to 14, its lowest point since April 2009. An index reading below 50 indicates the majority of builders have a negative view of market conditions, and the index hasn't risen above 50 in more than three years. It hit a low of 8 in January 2009 and a high of 72 in June 2005.

Analysts polled by Bloomberg had anticipated an index reading of 15 in August.

"Today's report reflects single-family home builders' concerns about current and future economic conditions and about the increasing hesitancy they are seeing among potential home buyers," said NAHB Chief Economist David Crowe in the news release. "It also reflects the frustration that builders are feeling regarding the effects that foreclosed property sales are having on the new-homes market, with 87% of respondents reporting that their market has been negatively impacted by foreclosures."

On the positive side, Crowe projected that modest job gains, historically low mortgage rates, and pent-up demand will lead to a better housing market in the second half of 2010.

Three out of four regions posted declines in August. A six-point decline to 18 in the Northeast partially offset a big gain in that region in the previous month, while the South and West each posted one-point declines to 13 and 8, respectively. The index for the Midwest held even at 15 in August.

Read a story about the July NAHB builder index from the archives of InvestmentAdvisor.com.

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