Home builders increasingly pessimistic

updated 2:05 p.m. ET Aug. 15, 2007

WASHINGTON - Home builders are getting increasingly pessimistic about future sales, a real estate trade group said Wednesday, as prospective buyers become more wary of jumping into a struggling housing market.

The National Association of Home Builders said its housing market index, which tracks builders’ perceptions of current market conditions and expectations for home sales over the next six months, fell two points to 22 this month, the lowest reading since January 1991 and the sixth-straight monthly decline.

The group said widespread attention to the housing market’s slump and the troubled home loan industry has led to a “wait-and-see attitude” among many potential buyers.

All U.S. regions saw declining builder confidence, except for the South, where the reading was unchanged. The biggest decline in confidence was felt in the Midwest.

Wall Street had expected a reading of 23, according to the consensus forecast of economists surveyed by Thomson/IFR.

Builders are cutting their prices and offering buyers other incentives to help sell homes, but the market remains difficult, the trade group said. More would-be buyers are now unable to qualify for mortgages as risk-averse lenders tighten credit standards amid rising defaults.

Delinquencies among borrowers with weak, or subprime, credit have risen dramatically over the past year, and other loans are showing weakness as well.

“There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance,” the NAHB’s chief economist, David Seiders, said in a statement. However, he predicted that home sales and new home construction should both start picking up next year.

The index is based on a survey of residential developers nationwide. Index ratings higher than 50 indicate positive sentiment about the market. The seasonally adjusted index has been below 50 since May 2006.

The index has fallen every month since March, and big homebuilders such as D.R. Horton Inc., Pulte Homes Inc., Lennar Corp., Centex Corp. and Toll Brothers Inc. have been struggling.

Over the past week, Hovnanian Enterprises Inc. reported a drop in quarterly home deliveries, D.R. Horton was downgraded by an analyst and Beazer Homes USA Inc. disclosed accounting irregularities and delayed its quarterly financial report.

Ratings agency Standard & Poor’s said Wednesday it may cut Beazer’s corporate credit rating, as Fitch Ratings did Monday.

The market for existing homes also is weak. Sales of existing homes fell in 41 states during the April-June quarter while home prices were down in one-third of the metropolitan areas surveyed, the National Association of Realtors said Wednesday. The national median existing home sales price in the second quarter was $223,800, down 1.5 percent from a median price in the spring of 2006, the Realtors group said.

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