Home Builders Grow More Pessimistic

Washington, DC, Oct. 20, 2009--Faced with the imminent expiration of a government subsidy for new buyers, U.S. home builders grew more pessimistic again in October.

The National Association of Home Builders/Wells Fargo sentiment index fell to 18 in October from 19 in September. It was the first decline since June. The index bottomed at a record-low 8 in January; the index peaked at 72 more than four years ago.

Economists expected the index to rise to 20.

All three components of the index fell for the first time in nearly a year.

At 18, the home-builders' index shows that only about one in six builders has a positive view of the housing market. Over time, the index is highly correlated with the government's data on starts on single-family homes.

Starts of single-family homes have risen 34% since January after builders cut production far below the sales rate. Inventories of unsold homes have now fallen to a 16-year low.

But builders still have trouble on the supply side. It's taking a record amount of time -- nearly 13 months -- to sell a home after it's completed. Foreclosures and short-sales have boosted the supply of existing home on the market as well.
Plea for subsidy

The builders put all their hopes on Congress passing an extension or expansion of the program that gives first-time buyers up to $8,000 toward the purchase of a home. Buyers need to close the sale on a home before Dec. 1 to qualify.

The expiration of the refundable tax credit "could derail the fragile recovery in housing just as it is starting to take shape," said Joe Robson, a builder from Tulsa, Okla., who is chairman of the contractors' trade group.

Not only are builders facing tough times getting financing to build or complete homes, he added, but also they're burdened by new, tougher rules for appraisals that require an independent view of home prices before mortgages can be underwritten.

Congress is considering legislation that would extend the tax credit.