Builders in U.S. Lost Confidence After Credit Ended (Update2)
By Courtney Schlisserman
June 15 (Bloomberg) -- Builders in the U.S. turned more pessimistic in June than expected, signaling housing demand may be slowing even more than anticipated after a government tax credit expired.
The National Association of Home Builders/Wells Fargo confidence index dropped to 17 from 22 in May, lower than all estimates of economists surveyed by Bloomberg News and the biggest decrease since November 2008, data from the Washington- based group showed today. Readings lower than 50 mean more respondents said conditions were poor.
The figures, combined with a collapse in mortgage applications, adds to evidence home sales and construction may slump after the deadline to sign contracts and receive a tax break worth as much $8,000 passed in April. The future of the industry will now depend on the strength of employment in coming months.
The incentive “brought forward a lot of attention that otherwise would have happened later in the year,” said James Knightley, an economist at ING Financial Markets in London whose forecast matched the lowest in the survey. “Hopefully it will be just a two- to three-month pause. If consumer confidence continues to rise, if household incomes continue to rise, then we could see a recovery perhaps in the fourth quarter of the year.”
The report trimmed earlier gains in the Standard & Poor’s Supercomposite Homebuilder Index. The measure increased 0.5 percent to 248.77 at 10:27 a.m. in New York after rising as much as 1.1 percent earlier in the day. The S&P 500 Index climbed 1 percent to 1,100.62.
Worse Than Forecast
The index was forecast to fall to 21 this month, according to the median of 49 projections in the survey. Economists’ estimates ranged from 18 to 24. The gauge, which was first published in January 1985, averaged 15 last year. Last month’s reading was the highest since August 2007.
Manufacturing in the New York region expanded in June at a faster pace, signaling factories are weathering the turmoil in financial markets and leading the economic recovery, a report today from the Federal Reserve Bank of New York also showed today. The general economic index rose to 19.6, an 11th consecutive month of growth and in line with the median forecast of economists surveyed.
Prices of goods imported into the U.S. fell in May, led by the biggest drop in petroleum costs since December 2008, a report from the Labor Department also showed. The 0.6 percent decrease in the import price index followed a 1.1 percent gain in April.
Breakdown of Index
The builders group’s index of current single-family home sales declined to 17 from 23 in May, which was the highest in almost three years.
The gauge of buyer traffic decreased to 14 from 16 the prior month. A measure of sales expectations for the next six months fell to 23, the lowest level since March 2009, from 27.
“The home buyer tax credit did its job in stoking spring sales and we expected a temporary pull back,” NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan, said in a statement. “However, the reduction in consumer activity may have been more dramatic than some builders had anticipated, which resulted in their lower confidence levels.”
Under the government’s incentive program, which was renewed and expanded in November, buyers had to sign contracts by the end of April and close on homes by June 30 to qualify for the credit.
Extend Closings
Senator Harry Reid last week proposed a three-month extension to the closing deadline amid concern that a rush of buyers created too big a backlog for builders to complete projects by the end of this month. An extension would support housing starts and construction in coming months.
“We have people we need to get closed by the end of the month,” LGI Homes Chief Executive Officer Eric Lipar said in an interview this month. “There is a sense of urgency.”
Construction crews for LGI begin work at 4 a.m. and don’t stop until 6 p.m. and usually work six days a week.
Helped by the credit, sales of new homes surged in April to a 504,000 rate, the highest level in two years, according to Commerce Department data.
The number of mortgage applications to purchase properties dropped in the first week of June to the lowest level since 1997, according to figures from the Mortgage Bankers Association.
The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to gauge the outlook for the next six months.
Regional Breakdown
Builders in the Northeast led the decline, with confidence levels dropping to 18, from 35. That was followed by a 4-point decrease in the West, to 15, and three points in the South and Midwest, to 19 and 14, respectively.
Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, earlier this month reported a narrower loss for the fiscal second quarter as it reduced writedowns on land it owns. Orders for new homes fell 17 percent and contract signings in May slowed after the government incentive expired.
“The tax credit helped pull some sales forward into earlier months this year,” Ara K. Hovnanian, chairman and chief executive officer, said in the statement. “We recognize that the expiration of the federal homebuyer tax credit, the lack of job growth and a potential increase in foreclosures all pose risks to a housing industry recovery.”
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