Builder confidence held at record lows in November due to "continuing mortgage market problems and a substantial inventory overhang," according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The overall HMI was 19, which was the same as the upwardly revised October reading.
According to the NAHB report, negative media coverage of the housing industry also factored into the lack of builder confidence.
"Builders are worried that the national media has tended to report negative housing stories as if there is one real estate market, when, in fact, there is no such thing -- all housing markets are local," said NAHB President Brian Catalde. "As a result, some healthy markets are being unfairly impacted by this negative media coverage."
Jim Brewer, vice president of construction with Sherman Oaks, Calif.-based Spiegel Development, agrees with the NAHB's assessment that the media has piled on. In fact, Brewer says negative media coverage is the biggest reason builder confidence is so abysmal.
"I think that the media coverage is on the top of the list -- that's basically the media talking about all the foreclosures that are coming around the corner or all the inventory that will be available to bid on," Brewer told BUILDER Online. "That's got everybody sitting on the fence, not willing to make a commitment and feeling that there is going to be a better deal if they just wait a few months."
"And that is what's causing an absolute shut down in our sales -- the fact that we have buyers that are convinced that if they just sweat it out for a few more months, there will be a lower price or a better deal," Brewer continues. "Nobody wants to be made out for a fool to have paid more than the next guy."
The NAHB/Wells Fargo HMI, which was first introduced in January 1985, gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either good, fair, or poor on a monthly basis. In addition, the survey asks builders to rate traffic of prospective buyers as either high to very high, average to very low. Scores are then used to calculate a seasonally adjusted index.
"The message from today's report is that builders do not see any significant change in housing market conditions as compared to last month," said NAHB Chief Economist David Seiders. "While they continue to work down inventories of unsold homes and reposition themselves for the market's eventual recovery, they realize it will be some time before market conditions support an upswing in building activity -- most likely by the second half of 2008."
Monday's HMI report comes one day before the Census Bureau is set to report on housing starts and permits, which is considered to be another measure of builder confidence.
Regionally, the HMI for the Northeast gained one point, rising to 27 and the West gained three points for a score of 18. The HMI in the Midwest declined one point to 13 and the HMI for the South declined two points to 19.
According to Carl Reichardt, a Wachovia Capital Markets senior equity research analyst, Monday's HMI report shows that the housing sector remains in a funk and the future looks bleak.
"The HMI showed little change in November and remains near the record lows set last month," Reichardt said in a statement. "Poor sentiment continues to support our view that deep discounting and increased incentives are not translating into increased unit demand in today's credit-constrained, over-inventoried environment."