Home builders: No recovery till '08

Builders' confidence falls in latest survey, view of current market at lowest level since 1991.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Home builder confidence fell for the third straight month in May and executives in the battered sector now believe they'll have to wait until next year for even a sluggish recovery to begin, according to an industry survey released Tuesday.

The survey by the National Association of Home Builders saw the confidence index sink to 30 in May from 33 in April, matching the September reading that had been a 15-year low at that time.

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The subindex measuring builders' view of current market conditions fell to the lowest level since February 1991, while their view of the market six months from now and their perception of buyer demand both dropped to match the 15-year lows hit in late 2006.

The trade group cited tighter credit for potential buyers following the meltdown in the subprime mortgage sector, which sparked a flurry of cancellations in new home orders.

"The crisis in the subprime sector has infected other parts of the mortgage market as well as consumer psychology, and as a result the housing outlook has deteriorated," David Seiders, the builders' chief economist, said in a statement.

"We're now projecting that home sales and housing production will not begin improving until late this year, and we're expecting the early stages of the subsequent recovery to be quite sluggish," he added. "There still are tremendous uncertainties regarding our baseline forecast going forward, owing largely to the subprime crisis that is having widespread effects throughout the mortgage market."

The downturn in new home sales and home building has hammered results at the nation's largest builders.

Pulte Homes (Charts, Fortune 500), the No. 4 U.S. homebuilder, posted a loss late last month. No. 2 homebuilder D.R. Horton (Charts, Fortune 500) reported a 37 percent drop in the number of new homes sold in the latest quarter, citing weakness in prices and saying the typical start to the spring home buying season hasn't begun.

No. 3 Centex (Charts, Fortune 500), New Jersey-based Hovnanian Enterprises (Charts, Fortune 500) and Atlanta-based Beazer Homes (Charts, Fortune 500) all also reported losses in the most recent quarter.

No. 5 builder KB Home (Charts, Fortune 500) returned to an operating profit in its most recent quarter after an earlier loss, but its CEO warned in April that he expects the housing slump to get worse.

The report from the builders' group comes the day before the government reports on housing starts last month. Economists surveyed by Briefing.com forecast that starts fell to an annual rate of 1.48 million in April, down from 1.52 million in March. The forecast would be the second lowest reading in the last 10 years, after the January number.

Building permits, which are often taken as a sign of builder confidence, is seen falling to a 1.52 million annual pace from 1.56 million in March. The forecast for permits would be the lowest level in nearly 10 years.

The weakness in the real estate market isn't confined to the new home sector. The National Association of Realtors reported that U.S. home prices fell for the third straight quarter in the first quarter, leaving prices down 6.5 percent from their peak in the third quarter of 2006. Top of page