Builders' confidence edges up from record low

Most builders still see weak housing market, but there are signs of hope for the not so distant future.
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See all CNNMoney.com RSS FEEDS (close) By Chris Isidore, CNNMoney.com senior writer
January 17 2008: 5:26 AM EST


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National Association of Homebuilders Jerry Howard says the trade group is looking for improvement in 2008.
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Goldman Sachs analyst Jan Hatzius says a recession and a more serious downturn in the housing market are on the horizon.
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NEW YORK (CNNMoney.com) -- Home builders' confidence showed a very slight improvement in January, helped by a narrow gain in their hopes for the market early this summer, according to the latest survey.

But despite that glimmer of hope, their overall outlook is still near the recent record lows.

The National Association of Home Builders/Well Fargo index had a 19 reading in January, up slightly from the downwardly revised December reading of 18, a record low. The index is based upon three subindexes that measure their view of current market conditions, outlook for six months down the road and the level of buyer traffic.

Builders' view of the market for single family homes six months from now was responsible for most of the index's narrow gain. The reading rose to 28 from 26, the second straight month of a two-point gain in that measure.

Just over half of those surveyed still expect a poor housing market in six months, although that's down from the 57 percent who felt that way in December.

The index's reading on the current market condition stayed unchanged at 19, just above the record low of 18 reached in the October and November surveys. More than two out of three builders surveyed believe the current market conditions are poor.

But their view of current buyer traffic did show a narrow gain, rising to 14 from the record low of 13 reached in December, although three out of four said the level of traffic was either low or very low.

"Builders are taking a realistic view of the continuing housing market correction and doing what they should to get inventories under control and restore greater balance to the supply and demand equation," noted NAHB President Brian Catalde, a home builder from El Segundo, Calif.

The report comes the day before the government report on housing starts and building permits is released. Economists surveyed by Briefing.com forecast that both readings are expected to fall once again to levels that would represent 14-year lows.

The weak market for housing and home building has become a major drag on the U.S. economy and raised fears that it could help to bring on a recession early this year, if such a downturn hasn't already begun.

That weakness has also hammered at the results of the nation's largest builders. A week ago KB Home (KBH, Fortune 500), the nation's No. 5 builder by revenue, reported a fiscal fourth quarter loss that was nearly 10 times worse than forecasts, as CEO Jeff Mezger told investors during a conference call that "As we enter 2008, we see no indication markets are stabilizing."

Lennar (LEN, Fortune 500), the nation's No. 1 home builder, is forecast to report a large increase in fiscal fourth quarter losses when it releases results Jan. 24. Those losses are forecast to continue throughout this fiscal year as well. Analysts are looking for No. 6 builder Hovnanian Enterprises (HOV, Fortune 500) to post losses in both fiscal 2008 and 2009.

Analysts are also forecasting that No. 2 Centex (CTX, Fortune 500), No. 3 D.R. Horton (DHI, Fortune 500) and No. 4 Pulte Homes (PHM, Fortune 500) are going to report continuing losses until at least their final quarters of this calendar year.

The builder with the forecast of the quickest return to profits is luxury home builder Toll Brothers (TOL, Fortune 500), seen as posting a narrow gain in the quarter ending in July. It posted its first loss as a public company in its most recent period, which ended in October.