A glut of both new and foreclosed homes in the market is having a chilling effect on builder sentiment, according to the National Association of Home Builders. The group maintains a confidence index that measures builders’ perceptions of the homebuilding market using current sales conditions, expectations and other factors. Anything below 50 on the index indicates poor builder confidence, and the index has not been above 50 since 2006. For more on this continue reading the following article from The Street.
The National Association of Home Builders’ index of builder sentiment came in flat in May, month-over-month, despite a rise in home sales, as interest among potential buyers remained sluggish.
The NAHB said early Monday its confidence index, which measures builder perceptions of current single-family home sales and sales expectations for the next six months, came in flat at a reading of 16 in May, matching expectations of industry watchers, according to consensus estimates listed on Briefing.com.
Any reading below 50 indicates poor sentiment. The index has not been above 50 since April 2006.
“Builder confidence has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing have continued to cloud the outlook,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “In addition, many builders in this month’s survey cited high gas prices as a further contributor to consumer anxiety and reluctance to go forward with a home purchase.”
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Potential buyer traffic ticked up one point in the recent survey, but those prospective buyers “remain extremely hesitant due to a number of factors,” said NAHB Chief Economist David Crowe. “Asked to identify reasons that potential customers are holding back at this time, 90% of builders surveyed said clients are concerned about being able to sell their existing home at a favorable price, while 73% said consumers think it will be difficult for them to get financing. Clearly, access to credit for both builders and buyers remains a considerable obstacle to the revival of the new-homes market.”
The index’s components include current sales conditions, sales expectations and traffic of prospective buyers. The first two components were unchanged in January at readings of 16 and 25, respectively, while traffic of prospective buyers edged up a single point to 12.
The homebuilder sector is well off its late-spring peak, when buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010.
Whereas other sectors have begun an economic rebound in earnest, the housing sector continues to lag as a bloated supply of homes for sale — both newly built and previously owned — coupled with depressed pricing from foreclosures pressures the market.
The SPDR S&P Homebuilders(XHB), an exchange-traded fund that tracks the homebuilder sector, remains around 60% off its peak of $46.08 in early 2006. The iShares Dow Jones U.S. Home Construction(ITB) ETF remains more than 70% off its peak of $50.10 in the spring of 2006.
Among individual builders, D.R. Horton(DHI), which recently posted a surprise quarterly profit, rose 1.4% Monday morning; Weyerhaeuser(WY), which returned to year-over-year profitability last quarter, added 1.9%; and small-cap builder Standard Pacific(SPF), which recently widened its losses, was lower by 1.7%.
Ryland(RYL), which also widened its losses and said new orders fell 17% last quarter, gained 0.7%.
Lennar (LEN), largely considered a leader among the homebuilders, posted a surprise quarterly profit in late March. Its stock gained 0.9% Monday morning.
This article was republished with permission from The Street.