Tuesday, July 17, 2007

Homebuilders: Not Good

Confidence among U.S. homebuilders fell this month to the lowest level in 16 years, signaling the housing market continues to tumble.

The National Association of Home Builders/Wells Fargo sentiment index declined to 24 this month, the lowest since January 1991, from 28 in June. Readings less than 50 mean most respondents view conditions as poor.

Builders are pulling back on construction of new homes as inventories remain high as sales haven't recovered. Housing probably will be a drag on economic growth the rest of this year, economists said.

``We do not look for a recovery of any magnitude in sales and starts for quite some time,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

Economists forecast the index would drop to 27, according to the median of 38 projections in a Bloomberg News survey. Estimates ranged from 26 to 29.

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

The group's measure of single-family home sales fell to 24, from 29. The index of traffic of prospective buyers dropped to 19, from 22. A gauge of expectations for the next six months declined to 34, from 39.

``The single-family housing market is still in a correction process,'' said David Seiders, chief economist of the builders' group, in a statement. ``Builders are actively trimming prices and offering buyer incentives to work down their inventories.''

The National Association of Realtors, on July 11, reduced its sales forecast for this year for a seventh straight month and projected that purchases of single-family homes will probably fall in 2008 to their lowest level since 1995.

The supply of new homes for sale at the current purchase pace reached the highest level in 16 years in March and has stayed elevated in recent months, according to figures from the Commerce Department. That has caused builders to cut prices, increase incentives and halt new projects.

D.R. Horton Inc., the second-largest U.S. homebuilder, said July 10 that it will report a third-quarter loss after orders plunged 40 percent. The company took 8,559 orders in the fiscal quarter, compared with 14,316 in the year earlier period, and the cancellation rate was 38 percent.

While construction continues to decline in coming quarters, housing's negative impact on economic growth may wane, economists said. Federal Reserve Bank of San Francisco President Janet Yellen said on July 12 that ``as housing's negative effect eases up,'' the pace of economic growth may ``pick up a bit in 2007.''

Residential investment has subtracted from economic growth every quarter since the last three months of 2005. Spending on home-construction projects fell at a 15.8 percent annual rate last quarter and subtracted 0.9 percentage point from gross domestic product.


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