Home builders’ confidence nears record low

updated 1:37 p.m. ET Jan. 16, 2008

WASHINGTON - A reading of U.S. homebuilders' sentiment remained near a record low in January, as gloom engulfed the housing industry.

The National Association of Home Builders said Wednesday its housing market index, which gauges builders' perceptions of current conditions, interest from potential buyers and expectations for home sales over the next six months, came in at 19 in January — the second-lowest point on record.

The group also revised December's reading downward by one point to a new record low of 18, the lowest result since the index began in 1985.

Nevertheless, shares of major builders rose Thursday, as investors took comfort in components of the index that showed expectations for sales and more traffic from potential buyers.

The index has been below 20 since October, a sign of persistent pessimism from builders.

Last year, total new home sales in the U.S. are projected to have dropped around 25 percent from 1.05 million in 2006. This year is forecast to be another dismal one.

The builders trade group predicts new home sales will drop to 741,000 this year, down 6.6 percent from a projected 793,000 in 2007, before climbing back 838,000 in 2009.

"Builders are anticipating a time when market conditions will support an upswing in building activity — most likely in the second half," of the year, David Seiders, the trade group's chief economist said in a statement.

Index readings higher than 50 indicate positive sentiment. The seasonally adjusted index has been below 50 since May 2006. It plummeted from 35 in January 2007 to 18 in December.

Tighter lending standards, rising defaults and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.

Last week, KB Home, one of the nation's largest homebuilders, said its fourth-quarter loss ballooned to more than $770 million as home sales dropped, prompting the builder to write down the book value of its unsold homes.

"Builders are taking a realistic view of the continuing housing market correction and doing what they should to get inventories under control and restore greater balance to the supply-and-demand equation," Brian Catalde, the trade group's president, said in a statement. Catalde is a homebuilder from El Segundo, Calif.

Confidence remained unchanged in the Northeast, inched up in the Midwest and South and fell sharply in the West.

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