Monday, December 17, 2007

U.S. Homebuilder Confidence Unchanged at Record Low (Update1)

By Bob Willis

Dec. 17 (Bloomberg) -- Homebuilder confidence in the U.S. was unchanged at a record low in December, signaling falling home prices and a glut of unsold properties will extend the housing slump into 2008.

The National Association of Home Builders/Wells Fargo index of builder confidence was 19 as forecast for a third month, matching the lowest since records began in 1985, the Washington- based group said today. Levels lower than 50 mean most respondents view conditions as poor.

Builders are scaling back construction plans as falling sales cause inventories to pile up and foreclosures rise. Some potential homebuyers are holding out for bigger price declines, suggesting construction will continue to limit growth.

``There are not a lot of incentives for homebuilders to improve their outlook,'' said Douglas Smith, chief economist for the Americas at Standard Chartered Bank in New York, who forecast no change. ``In the near term, we shouldn't have a lot of high hopes.''

The forecast was based on the median estimate of 38 economists surveyed by Bloomberg News. Projections ranged from 17 to 21. The index averaged 42 last year.

Another report today showed the deficit in the U.S. current account, the broadest measure of trade because it includes transfer payments and investment income, narrowed to the smallest in two years, according to figures from the Commerce Department.

Asset Purchases

International buying of U.S. financial assets accelerated at the fastest pace in five months in October, the Treasury Department also announced.

The builder survey asks members to characterize current sales as ``good,'' ``fair'' or ``poor,'' and to gauge prospective buyers' traffic. The survey also asks participants to assess the outlook for the next six months.

A gain in perceptions of present and future sales was offset by a decline in the number of buyers visiting projects. The group's measure of single-family home sales rose to 19 from 18 the prior month. A measure of sales expectations for the next six months rose to 26 from 24. The index of buyer traffic declined to a record-low 14 from 17.

``There clearly are signs of stabilization,'' said David Seiders, chief economist at the National Association of Home Builders, in a statement. ``Many builders are bracing themselves for the winter months, when home buying traditionally slows.''

Regional Breakdown

Regionally, builders in the Northeast became more pessimistic, while sentiment improved in the Midwest and South.

The housing recession has taken a second leg down since the subprime-mortgage turmoil in August led to a worldwide credit shortage. In the third quarter, new foreclosures hit an all-time high, the Mortgage Bankers Association said in a report Dec. 6, putting more homes back on the market.

Senate passage of two bills last week improved some builders' outlook, the report said. One piece of legislation protected mortgage borrowers in foreclosure from getting a surprise tax bill, while the other made more Federal Housing Administration loans available to subprime borrowers threatened with losing their home.

Those actions ``are definitely a step in the right direction,'' Brian Catalde, president of the group and a builder from El Segundo, California, said in a statement. Combined with President George W. Bush's plan to freeze some subprime mortgage rates, ``these are essential measures for improving credit liquidity, restoring consumer confidence and reviving the overall housing market and economy,'' Catalde said.

Starts Forecast

A Commerce Department report tomorrow may show builders broke ground on new homes at an annual rate of 1.176 million in November, according to a Bloomberg survey. That would be the fewest since March 1993 and down from 1.229 million in October.

Housing starts in October were 46 percent below their Jan. 2006 peak, while new-home sales were down 48 percent from the record reached in July 2005. Sales and construction are likely to continue falling as long as inventories hold near record levels and prices tumble, economists said.

Home prices in the U.S. fell 4.5 percent in the third quarter from a year earlier, the most in at least two decades, according to the S&P/Case-Shiller home price index released Nov. 27. Lehman Brothers is forecasting prices will fall at least 15 percent from peak to trough.

Falling home prices leave Americans feeling less wealthy and thus less likely to spend or borrow against the equity in their homes. As declining home construction detracted from growth for the past seven quarters, falling prices may now weaken consumer spending. That is prompting some economists, including Richard Berner at Morgan Stanley, to project a recession next year.

Homebuilders are bracing for more bad news.

``This looks like it's going to be the deepest correction of any housing correction since World War II,'' Timothy Eller, chief executive officer of Centex Corp., the fourth-largest homebuilder, told a housing conference in Las Vegas on Nov. 27.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: December 17, 2007 13:28 EST

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