Builder Confidence Falls Further In July

A surplus of unsold homes on the market, combined with ongoing concerns in the sub-prime mortgage arena and affordability issues associated with tightened lending standards and higher interest rates, continues to take a significant toll on builder confidence, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released. The HMI declined four points to 24 in July, which is its lowest level since January of 1991.

"The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period," says NAHB chief economist David Seiders. "Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market, and affordability problems persist despite efforts to attract buyers.

"In spite of these challenges, we expect to see home sales get back on an upward path late this year and we expect housing starts to begin a gradual recovery process by early next year. At that point, this market will be operating well below its long-term potential, providing plenty of room to grow in 2008 and beyond."

The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally-adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

All three component indexes declined in July. The index gauging current single-family sales and the index gauging sales expectations in the next six months each declined five points to 24 and 34, respectively, while the index gauging traffic of prospective buyers declined three points to 19.

Likewise, all four regions of the country posted declines in the July HMI. The Northeast and South each saw five-point declines, to 31 and 26, respectively, while the Midwest slipped a single point to 19 and the West declined three points to 25.


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