Home builder sentiment nears record low in May

NEW YORK (Reuters) - Home builder sentiment fell for the first time in four months in May, edging closer to the record low set in December, as market conditions continued to worsen, an industry group said on Thursday.

Phil Garcia cuts stone in front of a newly built home in the Courtland Ridge development in Alpine, Utah, March 26, 2008. REUTERS/George Frey

The National Association of Home Builders said its preliminary NAHB/Wells Fargo Housing Market Index fell to 19 from 20 in April, within one point of the record low of 18 set in December. The gauge started in January 1985.

The turn for the worse is indicative of the struggle home builders are facing as they grapple with the worst U.S. housing market downturn since the Great Depression.

“We hear anecdotes that in some regions in particular in California the supply coming to the market from home builders is now smaller than the supply coming from foreclosures,” said Torsten Slok, senior economist at Deutsche Bank in New York.

The situation in the housing market remains gloomy and the home builders seem to be waiting for the foreclosure “tsunami” to pass, Slok said.

“The bright spot here is that we could see foreclosures peak over the coming quarters as a result of government initiatives and lower interest rates and that would be helpful to the home builders currently sitting on the sidelines,” Slok said.

The May index came in one point below expectations based on a Reuters survey of economists.

Readings below 50 indicate more builders view market conditions as poor than favorable.

“With the HMI hovering in the historically low two-point range that’s prevailed over the past nine months, the message is very clear: The single-family housing market is still deteriorating and Congress and the administration must move immediately to enact legislation that will help reverse the trend,” NAHB President Sandy Dunn, a home builder from Point Pleasant, West Virginia, said in a statement.

The gauge of current single-family homes sales fell to 17 from 18. The index of sales expected in the next six months dropped to 27 from 30. The prospective-buyer traffic measure declined to 17 from 19, the group said.

Tighter lending standards are fueling the unwieldy supply of homes for sale. It has become increasingly difficult for prospective buyers to obtain a home loan and that is having an impact on sales.

Many potential home buyers are cautious about buying and fear that the home they buy today may be worth less in the near future.

“Despite the Federal Reserve’s concerted efforts to lower short-term interest rates, free up credit markets and shore up the national economy, the housing market has shown no evidence of improvement thus far. In fact, conditions have continued to deteriorate in recent times,” NAHB Chief Economist David Seiders said in a statement.

The results of the latest survey “certainly adds fuel to the argument that targeted policy stimulus, in the form of a temporary tax credit for home buyers, is essential to halt the housing downswing and remove the heavy drag being exerted by housing on overall economic growth,” he said.

On a regional basis, the HMI fell in three out of four regions in May. The Northeast posted a four-point decline to 18 and the Midwest posted a three-point decline to 12, which was also an all-time low. The South posted a two-point decline to 22. The West posted a three-point gain to 20 this month, but remained well below the level of a year earlier.

The NAHB’s soft data may help shed light on the state of the U.S. housing market and what is in store for the hard-hit sector this spring, which is traditionally the peak of the home-buying season.

Editing by Tom Hals