Real Estate

Builders' confidence at all-time low

Home builders see weakest buyer traffic in 23-year history of trade group survey, outlook for future remains at record low as well.

By Chris Isidore, senior writer

NEW YORK ( -- The nation's home builders' confidence in the battered market for new homes fell further in October, and a measure of their outlook remained at a record low level, according to the latest industry survey.

The National Association of Home Builders/Wells Fargo Housing Market Index showed the overall confidence measure sank to 18, the worst reading on record for the 23-year old monthly survey.

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The trade group's statement said the problems included decreased availability of subprime mortgages, a glut of new homes available for sale and reports about declining home values.

The builders' expectations for the market six months from now came in with a reading of 26, matching the lowest reading on record that was set in September. And their view of current buyers' traffic fell to a record low reading of 15.

"Builders in the field are reporting that, while their special sales incentives are attracting interest among consumers, many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values," said NAHB President Brian Catalde.

The overall confidence reading reflects the eighth straight month in which that measure has declined. It has fallen sharply, and is down from a very strong reading of 74 only two years ago. A reading of 50 in any of the three measures indicates the number of positive responses from builders is equal to the number of negative responses.

Still, the builders' trade group says that its members hope that they are at or near the bottom of the market.

"Builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead," said David Seiders, the group's chief economist. "Indeed, NAHB's housing forecast indicates that home sales should stabilize within the next six months and show significant improvement during the second half of next year."

Still Seiders concedes that there will be tough months ahead, as problems with subprime mortgages and uncertainty about the housing market keeps potential buyers stay on the sidelines.

"Consumers are still trying to sort out market realities and get the best deals they can," said Seiders. "Many prospective buyers may very well have unrealistic expectations regarding new-home prices as well as how much they can expect to receive for their existing homes. When the market is in proper balance, people can recognize a good deal when it comes along; at this point, they view a good deal as a moving target."

The report is just the latest reading to show the home building and new home sales markets to be in serious trouble. In remarks Tuesday, Treasury Secretary Henry Paulson said that the housing decline is still unfolding and he termed it the most significant current risk to our economy.

"The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth," he warned in prepared remarks.

Earlier Tuesday, lender Wells Fargo (Charts, Fortune 500), one of the nation's first banks to report problems from rising defaults in subprime mortgages, took another $490 million charge for mortgages that have lost value. It also increased reserves to cover bad loans. In addition, leading home builder D.R. Horton (Charts, Fortune 500) reported that its fiscal fourth-quarter orders fell 39 percent, while the value of those orders plunged 48 percent.

Last month Lennar (Charts, Fortune 500), the nation's No. 1 builder in terms of revenue, posted a much bigger than expected loss, and KB Home (Charts, Fortune 500) also reported a steep loss as it warned problems would continue into 2008. Last week credit rating agency Moody's downgraded Lennar, Centex (Charts, Fortune 500) and Pulte Homes (Charts, Fortune 500) debt into junk bond status.

The survey comes the day before the government's monthly report on housing starts and building permits. Economists surveyed by forecast that the pace of starts fell to an annual rate of 1.29 million in September from 1.33 million in August. That would mark a 12-year low for starts.

Permits, which are also taken as a sign of builders' confidence, are forecast to fall to an annual rate of 1.3 million in September from 1.32 million in August. That would also mark a 12-year low. Top of page