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Real Estate

Builder confidence: Bad and getting worse

Latest survey finds builders view market as weakest in 16 years, and their expectations for the next six months are worst on record.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Builders say the current housing market is the weakest it's been in 16 years, but as bad as that is, their view of where the market will be in six months is even worse.

That's the results of the latest survey from National Association of Home Builders, an industry trade group that conducts a monthly survey along with Wells Fargo bank. It weighs builders' views of current market strength, their expectations six months out and the level of traffic they are seeing from buyers.

Home builders' confidence fell to a 16-year low in the most recent survey, and their view of where the market will be six months from now is even worse.
Home builders' confidence fell to a 16-year low in the most recent survey, and their view of where the market will be six months from now is even worse.
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The survey found that the group's overall index fell to 20 from 22 in August, the seventh straight month of decline - and the worst reading since the start of the first Gulf War in January 1991, when the nation was in the grip of both a recession and an energy price shock.

The reading for builders' views of the current market also fell to a 16-year low, while their view of buyer traffic remained unchanged from August at a level not previously seen since December 1990.

And the survey's finding on builders' view of the state of housing six months out fell to a reading of 26, the worst figure on record in the 23-year history of the index, and down from the previous record low of 31 in the August report.

"Builders are expressing concern that home buyers are getting spooked by the many headlines they are seeing on mortgage market issues and their continuing effects on the housing market and home prices," said a statement from NAHB President Brian Catalde, a home builder from El Segundo, Calif. "Indications are that consumers are trying to time the bottom of the market before making their purchase."

But builders not surprisingly believe that this is a good time for buyers - at least those able to get a mortgage - to buy because of the glut of new homes on the market and the weakness in prices.

The most recent government report showed that there were 175,000 completed new homes for sale in July, up 23 percent from a year earlier, and that builders had to wait a median of 6.1 months to sell a completed home, up from only 3.6 months in July 2006. That was the most recent period for which data was available, and it was before the mortgage market problems got worse in August.

In addition the glut of existing homes available for sale hit a 16-year high in July, according to the National Association of Realtors, and a rising rate of mortgage foreclosures could dump 2 million homes on the market this year, according to a report released Tuesday by RealtyTrac, a marketer of foreclosed properties.

Even the builders admit it is going to take some time for them to work through the inventory of homes on the market, and that the pace of new housing starts begin what will be a gradual recovery process by the third quarter of next year.

"At that point, the market will have substantial growth potential," said David Seiders, the group's chief economist.

The report comes the day before the government report on housing starts and building permits. Economists surveyed by Briefing.com had forecast that the annual pace of housing starts in August fell to a 12-year low of 1.35 million from 1.38 in July. Building permits, which are also taken as a reading of builders' confidence in the market, are also expected to fall to a 12-year low of an annual rate of 1.35 million, from 1.37 in July.

The downturn in housing has led to losses at the nation's six largest home builders.

Lennar (Charts, Fortune 500), the nation's No. 1 builder, and No. 5 KB Home (Charts, Fortune 500) both reported a loss in the latest quarter. No. 2 home builder D.R. Horton (Charts, Fortune 500) and No. 3 Centex (Charts, Fortune 500) both reported losses far bigger than Wall Street had expected, while No. 6 Pulte Homes (Charts, Fortune 500) and Hovnanian Enterprises (Charts, Fortune 500) have reported losses for the last two quarters and analysts project losses for at least the next year. Top of page