Home builder sentiment at new low, buyers demur

NEW YORK (Reuters) - Pervasive recession fears and financial market upheaval hammered U.S. home builder sentiment to a record low in November, a trade group said on Tuesday, dealing a significant blow to an already flailing housing market.

The NAHB/Wells Fargo Housing Market index slumped five points to 9 in November, the lowest since the measure was started in January 1985, according to the National Association of Home Builders. Readings below 50 mean more builders view market conditions as poor than favorable.

"These are awful numbers," said David Sloan, chief economist, North America, for 4CAST in New York. "This suggests a weak housing market is taking a significant fresh hit from the credit crunch so we're going to see even more extreme weakness in the housing sector in the next few months."

It was the largest one-month drop in the confidence measure since August 2006, when it fell to 33 from a reading of 39.

Economists polled by Reuters had forecast the index would stay at 14 in November, the previous all-time low.

"Today's report shows that we are in a crisis situation," NAHB Chairman Sandy Dunn said in a statement. "Tremendous economic uncertainties have driven consumers from the housing market, and it's going to take some major incentives to bring them back," she said.

Even as fear of unemployment escalates and saps consumer confidence, the housing market battles a burdensome supply of unsold homes inflated by mounting foreclosures.

Lenders also have pulled back the reins in offering new loans. At the same time, many potential consumers resist buying now what could cost less later.

"One thing that has been made very clear is that there is no silver bullet to 'save' the housing market," said Michelle Meyer, economist at Barclays.

"There's been a plethora of initiatives put forward by the government to encourage mortgage modifications and new home ownership," she noted. "But the major problem is that we're in a recession that appears to be deepening, there's a big confidence shock to consumers, rising unemployment which impacts future income, and there's evaporating wealth both on housing and financials."

PRICES, CONFIDENCE GROPE FOR FLOOR

Existing U.S. single-family home prices in metro areas fell 9 percent in the third quarter compared with the same quarter last year weighed down by foreclosure sales, the National Association of Realtors reported earlier on Tuesday.

U.S. home prices through August sank more than 20 percent from their peak in the summer of 2006, according to Standard & Poor's/Case-Shiller home price indexes. Many economists are looking for an additional 10 percent price erosion.

Where there appears to be a burgeoning demand, sales are being driven by deeply discounted prices on foreclosures.

In Southern California, for example, home sales jumped 67 percent in October from a year earlier, with foreclosures accounting for half of that business while depressing prices.

"Given the current wave of defaults, it won't be surprising to see the decline of house prices as far as 60 percent," said Tomasz Piskorski, assistant finance professor at Columbia Business School in New York. "There are lots of fire sales."

Treasury Secretary Henry Paulson on Tuesday said the housing correction is at the root of the economic downturn and financial market stress, and that the slowing economy now may prolong the correction.

Three million U.S. jobs in construction and related industries have been wiped out in the downturn, NAHB Chief Economist David Crowe said in the statement.

"Congress should consider significant consumer incentives such as expanding the first-time home buyer tax credit and providing a government buy-down of mortgage interest rates for home purchasers," he said. "Both policies were successfully combined in the 1970s to stimulate home buyer demand, and could get housing and the national economy moving again."

Builder confidence fell in every region this month and readings were well below a year ago.

In the hard-hit West region, for example, the five-point drop in the sentiment index to 6 put it one-third of the 18 reading in November 2007.

The trade group's index gauging current sales conditions fell six points to 8, a record low. Its measure of prospective buyer traffic fell four points to 7, also a new floor.

The index of sales expectations in the next six months held at the all-time low of 19 set in October.

"While some people are feeling that the housing market has fallen so far it doesn't have that much more downside, I think these numbers suggest that there is scope for it to continue to decline significantly," Sloan said.

(Editing by Tom Hals)