Home Builder Sentiment Falls to Record Low in July

U.S. home builder sentiment dropped to a record low in July as the confluence of falling home prices, rising energy costs and unemployment turned buyers away, the National Association of Home Builders said.

The NAHB/Wells Fargo Housing Market index fell two points to 16 in July from 18 in June, the group said in a statement.


Economists polled by Reuters had predicted the index would hold steady at 18. Readings below 50 mean more builders view market conditions as poor than favorable.

The three sub-indexes also plunged to record lows, said the NAHB, which has collected such data for over 20 years.

The index measuring the traffic of prospective buyers slid to 12 from 16, while the gauge of sales over the next six months declined to 23 from 27, the NAHB said. The index of current single-family sales dipped to 16 from 17, it added.

"Given the systematic deterioration of job markets, rising energy costs and sinking home values aggravated by the rising tide of foreclosures, many prospective buyers have simply returned to the sidelines until conditions improve," NAHB Chief Economist David Seiders said in the statement.

The latest data on existing homes showed sales edged higher in May, coming partly as banks saddled with foreclosed properties dropped prices to rid themselves of inventory.

The process was seen as the first step in forming a bottom for the housing market, but widespread forecasts for falling home prices through 2009 will likely drive more foreclosures, analysts said.

Home builder shares that have been drubbed for 18 months rose on Wednesday.

The Dow Jones Home Construction Index bounced 5 percent from its lowest level in years to 252.02.

The NAHB called on Congress to help clear the market of unsold homes by including in legislation a provision that would give first-time homebuyers an $8,000 tax credit.

Earlier Wednesday, an industry group said U.S. mortgage applications rose for a third consecutive week, reflecting an increase in demand for home loan refinancing as interest rates plunged.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 1.7 percent to 522.2 for the week ended July 11.

While the increase was modest, the report offers a glimmer of hope for a U.S. housing market that is suffering one of the worst downturns in its history.

Significantly tighter lending standards and an unwieldy supply of homes for sale are just some of the factors preventing the U.S. housing market from recovering from its two-year-long slump.

The frenzy of foreclosures hitting the market is aggravating matters, adding supply and depressing home prices nationwide, analysts say.