Real Estate

Builders see worse times ahead

Confidence index remains at record low as outlook for market in six months slips from previous reading.

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By Chris Isidore, senior writer

Builders have a less optimistic view of the chance of recovery  in the housing market in six months, according to a survey by their trade group.
Builders have a less optimistic view of the chance of recovery in the housing market in six months, according to a survey by their trade group.
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NEW YORK ( -- Home builders' confidence stayed at record low levels in a November reading released Monday, as a slight uptick in buyer traffic was balanced out by a slightly more pessimistic view six months down the road.

The overall National Association of Home Builders/Wells Fargo index was 19, which was the same as the upwardly revised October reading.

The index measuring how builders view buyer traffic edged up to a reading of 17 from 15 in October. But the subindex measuring builders' view of the market six months from now slipped to a record low 25 from 26 a month ago.

The survey of builders found 57 percent now expect a poor market for new homes six months from now. Only 5.7 percent are looking for a good housing market that soon.

"The message from today's report is that builders do not see any significant change in housing market conditions as compared to last month," said NAHB Chief Economist David Seiders. "While they continue to work down inventories of unsold homes and reposition themselves for the market's eventual recovery, they realize it will be some time before market conditions support an upswing in building activity - most likely by the second half of 2008."

The report comes the day before the Census Bureau is set to report on housing starts and permits, which are often seen as another measure of builder's confidence in the market. Both readings are forecast to fall to a 14-year low.

Builders have widely reported offering incentives such as covering closing costs and extra features on a new home for free in order to spur demand.

"Many are reporting that their special sales incentives are having limited success in terms of getting buyers in the door," said a statement from NAHB President Brian Catalde, a home builder from El Segundo, Calif.

He said builders are particularly concerned that negative media reports about the weak housing market are dissuading buyers, and fueling unrealistic expectations regarding home price discounts. Those reports are helping to spread weakness from troubled housing markets with a glut of homes available to more healthy markets, he said.

The group's reading improved slightly in the Northeast and West regions, but it continued to weaken in the South and Midwest. The South accounts for nearly half of all new home sales nationwide.

The downturn in housing has hammered the results of the nation's leading home builders.

Of the nation's largest home builders, only luxury home builder Toll Brothers (Charts, Fortune 500), No. 6 in terms of revenue, has yet to report a quarterly loss in the current downturn, and analysts are forecast a loss for its just completed period. Its preliminary results for that period showed a sharp drop in the number of homes sold and an even steeper decline in prices.

The five larger builders all reported much larger-than-forecast losses in their most recent financial periods. Earlier this month Hovnanian Enterprises (Charts, Fortune 500), the nation's No. 7 builder by revenue, reported that the sales pace during October "significantly deteriorated" compared with recent months in most of its markets, as its preliminary results also showed a sharp rise in cancellations.

D.R. Horton (Charts, Fortune 500), the nation's No. 1 builder by revenue in terms of its most recent reports, is due to report results before the market open Tuesday, and analysts are forecasting a large loss compared to a profit in the year-earlier period.

In October, credit rating agency Moody's downgraded the debt of No. 2 home builder Lennar (Charts, Fortune 500), No. 3 Centex (Charts, Fortune 500) and No. 4 Pulte Homes (Charts, Fortune 500) to junk bond status.  To top of page

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