January 21, 2009 / 6:28 PM / 11 years ago

UPDATE 2-US Jan home builder sentiment sinks to a new low

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By Julie Haviv

NEW YORK, Jan 21 (Reuters) - U.S. home builder sentiment sank to a new low in January as concerns about the faltering economy and reluctant home buyers hurt confidence in the market for newly built single-family homes, an industry group said on Wednesday.

The National Association of Home Builders said its preliminary NAHB/Wells Fargo Housing Market Index was 8 in January, down from 9 in December. That is the lowest level on record since the gauge was launched in January 1985.

Readings below 50 indicate more builders view market conditions as poor than favorable. The January index was below expectations of 9, based on a Reuters survey of economists.

Eric Belsky, executive director at Harvard University’s Joint Center for Housing Studies, said home builders are facing competition from a flood of homes in foreclosure as well as struggling under sinking demand and a credit crisis.

“They have been responding to slack conditions by reducing production dramatically, but demand continues to fall and until that comes back, the drop in production is not enough to make the market turn around,” he said.

Interest rates on mortgages have fallen sharply recently, a key development that could help turn around the hard-hit housing sector, but not enough to improve demand at this point.

“Even though we have lower mortgage rates, people are staying sidelined out of fear over further home price drops, anxiety about the economy, their income and their job,” Belsky said.

The U.S. housing market is suffering the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices.

“It going to be another tough year for the housing market unless something improves in the economy or the government takes bolder action to stem the tide of foreclosures,” Belsky said.

“The government also needs to do something to stimulate broader demand in order to provide real opportunities for potential homeowners,” he said.

“Clearly, conditions in the nation’s housing market aren’t getting any better, and they aren’t going to get any better until the federal government takes substantial action to encourage qualified buyers to get back in the market,” NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, West Virginia, said in a statement.

The gauge of current single-family homes sales fell to 6 from 8. The index of sales expected in the next six months, however, increased to 17 from 16. The prospective-buyer traffic measure also climbed, rising to 8 from 7, the group said.

HOME BUILDERS ARE HURTING

Home builders have curbed new construction as they have been working through inventories of unsold homes by slashing prices at the expense of profits to pay off debt and keep afloat.

“Builder views continue to track with historically low consumer confidence measures,” NAHB Chief Economist David Crowe said in a statement.

“The fact that there has been microscopic movement in the historically low HMI and its component indexes over the last three months provides further evidence of the need for government action to rejuvenate housing demand,” he said.

On a regional basis, the housing market index declined in two out of the four regions in January. The Northeast posted a one-point decrease to 10 and the Midwest was unchanged at 6. The South posted a one-point gain to 11 and the West posted a three-point decrease to a new record low of 4 this month. (Editing by Chizu Nomiyama)

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