Homebuilder Confidence Unexpectedly Dips Again in July

Home Builder Confidence Unexpectedly Plunges in July
Home Builder Confidence Unexpectedly Plunges in July

The U.S. real estate market recorded another setback in July: The National Association of Home Builders reported that its Housing Market Index fell to 14 in July from a downward-revised 16 in June, with homebuilder confidence waning and sales dipping after the expiration of the federal home-buyers tax credit.

The July reading is the lowest for the index since April 2009. Index levels above 50 indicate that more builders view sales conditions as good than poor. The index has been below 50 for 51 consecutive months.

A Bloomberg survey had expected the index to hold steady at 16 in July. A year ago, the index was at 17. It hit a cycle-low of 8 in January 2009 and an all-time high of 72 in June 2005.

Better News in the Northeast

All three of the index's components fell in July. The component gauging current sales conditions fell to 15 from 17 in June; the six-month sales expectations component dipped to 21 from 22, and the traffic of prospective buyers component sank to 10 from 13.

Breaking the numbers down regionally did provide one modest, bright spot: The Housing Market Index rose 7 points to 23 in the Northeast, and increased 1 point to 15 in the Midwest. But those gains were outweighed 5 point declines in both the South and West, to 14 and 9, respectively. However, the NAHB cautions that the Northeast has a smaller survey sample and hence is prone to greater volatility.

NAHB chief economist David Crowe said several factors have combined to create a subdued mood among builders this season.

"This month's lower HMI reflects a number of underlying market conditions that builders are seeing, including hesitant home buyers, tight consumer credit, and continuing competition from foreclosed and distressed properties that are priced below the cost of construction," Crowe said in a statement. "The pause in sales following expiration of the home buyer tax credits is turning out to be longer than anticipated due to the sluggish pace of improvement in the rest of the economy."

2010 Prediction: A 10% New Home Sales Increase

Even so, Crowe added that he expects favorable factors including low mortgage rates and lower home prices to boost new home sales by 10% in 2010.

Crowe's prediction of a 10% increase in new home sales this year may prove to be a tad optimistic, particularly if job growth continues to be inadequate. While employed Americans with decent job security will create some new home sales demand, few economists expect those existing employees to be a big enough market to generate a large increase in new home sales.

The latter requires an influx of new prospective home buyers into the market -- something that historically has been dependent on strong job growth. On that front, policymakers and business executives have an unenviable task. The U.S. economy created only 85,000 new jobs in the private sector in June, which also saw the elimination of many U.S. Census jobs. Historically, monthly jobs gains of 150,000 and up have been required to generate significant gains in new home sales.