Builders say bleak outlook might turn even worse

Housing sentiment stuck in negative zone

5/17/2011

WASHINGTON — U.S. home builders are concerned that the struggling housing market won’t recover this year and some feel it may be getting worse.

Builders’ outlook for the industry in May was unchanged at 16, the National Association of Home Builders said Monday. It has been at that level for six out of seven months.

Any reading below 50 indicates negative sentiment about the market. The index hasn’t been above that level since April, 2006.

When asked about where sales of single-family homes are heading in the next six months, the builders offered their most pessimistic outlook since September.

Last year the number of people who purchased previously owned homes fell to a 13-year low. Sales of new homes were even worse, hitting the lowest level on records dating back nearly a half-century.

Builders are struggling because foreclosures are forcing down prices for resale homes. The median price of a new home was about 34 percent higher in March than the median price for a resale. That’s more than twice the markup in healthy markets.

So builders break ground on fewer homes. The seasonally adjusted annual pace in March was 549,000 new homes a year, less than half the 1.2 million units annually that economists say is healthy. The Commerce Department is to release the April data on new-home building today.

“You can get existing homes at a much cheaper price now, mainly due to foreclosures,” Paul Dales, senior U.S. economist at Capital Economics, said. “New homes really aren’t competitively priced.”

Fewer new homes mean fewer jobs. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, the trade group noted.

The trade group cited some familiar factors weighing on the market: tighter lending standards, high unemployment, and more homes sold at foreclosure.

But the group also noted that higher gas prices created “consumer anxiety… “ the group’s chairman, Bob Niel- sen of Reno, said.

About 90 percent of the builders surveyed said potential buyers fear they won’t sell their current home at a favorable price.

The hardest-hit states include Arizona, California, Florida, and Nevada.