Builders' confidence holds at record low

Record drop in home values

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NEW YORK (CNNMoney.com) -- Homebuilders' confidence in the housing market remained at record low levels, a trade group said Monday.

The NAHB/Wells Fargo housing market index for August held at a seasonally adjusted reading of 16, matching July's reading. Economists surveyed by Thomson/IFR also expected the index to remain at 16.

A reading below 50 indicates that more builders think home sales conditions are poor than those who think the environment is positive for sales. August's reading ties the record low level reached in July, which fell below the previous record low set in June.

Builders were asked for their view of the current market, the number of buyers looking at homes and expectations for six months from now.

Only 5% of the builders surveyed believe the current market is favorable, up from 4% in July. Of the more than 300 homebuilders surveyed, 73% view the market as poor. Still the bleak numbers were an uptick from July, sending the August present sales component index up to a level of 16 from 15 in July.

The future sales index also got a slight boost in August, rising to a level of 25, up 2 points from the previous month. Just 8% of builders said housing market will be favorable by the end of the year, though that's up from 6% in the previous month. Poor conditions are expected to continue six months from now by 60% of the builders surveyed.

Builders said the number of prospective buyers is still low, and the component traffic of buyers index held steady at 12. Only 1.2% of builders said they received a high number of prospects, while 77% said the number of potential buyers was low.

Although overall builders' confidence remains at an all-time low, Seiders believes the market is due for a turnaround soon.

"Our current forecast shows stabilization of sales during the second half of this year, followed by solid recovery in 2009 and beyond," he said in a statement. "It is a good sign that two out of three of the ... component indexes rose in August, and this may be an indication that we are nearing the bottom of the long downswing in new-home sales."

Though there is some stabilization of national existing home sales already, Seiders noted much of that has been driven by an upswing on foreclosure sales at cut-rate prices.

As a result of a battered market, President Bush signed the Housing and Economic Recovery Act late last month. The bill includes a temporary home buyer tax credit of up to $7,500 for first-time home buyers or haven't purchased a home in three years.

Qualified buyers must earn less than $75,000 - or $150,000 for a couple - after which point the tax credit begins to phase out. The Senate Finance Committee estimates that about 1.6 million people will use the credit.

"Builders are counting on some support from this new first-time homebuyer tax credit," Seiders said. "Though first-time home buyers generally buy more in the existing home market than in the new home market, new homes get a ladder effect from the existing home market."

Monday's report came a day ahead of the government's report on housing starts and building permits for July, which economists forecast will fall close to 17-year lows after unexpected gains in those measures in the June report.

Shares of homebuilders were mostly lower Monday. Lennar Corp. (LEN, Fortune 500), Centex Corp. (CTX, Fortune 500) D.R. Horton Inc. (DHI, Fortune 500) and Hovnanian (HOV, Fortune 500) all lost about 1%, though Radian Group (RDN) traded in slightly positive territory.