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Homebuilder mood hits 15-year low

Inventories of unsold homes pile up; could spell trouble for wider economy.

NEW YORK (Reuters) -- U.S. homebuilder optimism sank for a seventh consecutive month in August to its lowest level in 15 years as a dearth of buyers caused inventories of unsold homes to pile up, an industry trade group survey showed Tuesday.

The National Association of Home Builders said its index of sentiment among homebuilders plunged 7 points to 32 - its lowest since February 1991 - and less than half the level of a year ago.

The NAHB said its gauge of traffic of prospective buyers also fell, by 6 points to 21, suggesting a steeper decline in the number of people visiting model home units over the last month than in any other period this year.

An index reading below 50 means more builders view sales conditions as poor rather than good.

"Builders are pulling out the stops in terms of incentives to try and keep inventories down, but it's a pretty tough battle at the moment," David Seiders, the NAHB's chief economist, said in an interview. Home buyers are "adopting a 'wait-and-see' attitude because of uncertainty about where the housing market is headed," he said.

Real estate speculators, who flocked to the market in recent years, are also abandoning their bets in droves, adding to builders' supply, Seiders added.

Inventories of unsold existing homes have jumped 39 percent in the year through June to 3.725 million units, according to the National Association of Realtors. The number represents a 6.8 months supply of homes based on the current sales pace, compared with 4.4 months a year ago.

The NAHB's measure for current sales of new homes fell 7 points to 36 in August, and the index gauging its members' sales expectations for the next six months fell 6 points to 40. The three component indexes are at their lowest since 1991.

Major homebuilders, including D.R. Horton Inc., have slashed sales outlooks for 2006 amid a surge in canceled contracts, causing investor flight from their shares.

Luxury homebuilder Toll Brothers Inc. last week cited an excess of supply of homes on the market as it cut its sales outlook for a fourth time in less than a year.

The Dow Jones U.S. Home Construction Index has plunged this year, hitting a two-year low of 545.75 in July. The index in mid-afternoon trading rose 1.7 percent to 584.95.

The slide in builder confidence suggests the industry is "rolling over," and spells trouble for the economy because it is closely correlated to consumer spending, Joseph LaVorgna, Chief U.S. Economist at Deutsche Bank AG, said in a research note Tuesday.

Based on July's data, consumer spending could slow from 3 percent year-over-year growth to about 1 percent, he said.

The NAHB's Seiders expects industry weakness to worsen before it improves, adding he sees a leveling out by the end of the year, helped potentially by recent declines in long-term interest rates.

Mortgage finance company Freddie Mac last week said rates for 30-year mortgage loans - the most commonly used home loan - were at 6.55 percent, down from 6.80 percent in mid-July. The rate was 5.89 percent one year ago.

http://money.cnn.com/2006/08/15/news/economy/homebuilder.reut/index.htm