Builder sentiment rises from record low

Survey of home developers doesn't reflect fall in mortgage rates from bailout of mortgage-finance giants or turmoil on Wall Street.

Last Updated: September 18, 2008: 3:29 PM EDT

WASHINGTON (AP) -- Battered housing developers are getting a bit more optimistic about their prospects for the next six months, an index of the sector's confidence showed Tuesday.

The National Association of Home Builders/Wells Fargo housing market index rose two points to 18 this month from an all-time low of 16 in July and August.

The survey was taken in the first 10 days of September, and for the most part doesn't reflect the fall in mortgage rates since the government's takeover of mortgage finance companies Fannie Mae and Freddie Mac. It also doesn't take into account this week's Wall Street turmoil, which may push rates downward as nervous investors move into government bonds.

Immediately after the Fannie and Freddie seizure, "the positive impact on mortgage rates was probably not apparent to many builders," the trade group's chief economist, David Seiders, said in an interview.

Average rates on 30-year fixed-rate mortgages dipped to 5.93% last week, down from 6.35% on the Thursday before the takeover, according to Freddie Mac's weekly survey. Rates had been bouncing between 6% and 6.5% since late May.

Weak housing market offers discounts
Builders have been slammed by a combination of falling home prices, soaring foreclosures and an oversupply of unsold homes languishing on the market. But the industry is growing hopeful that consumers will finally take advantage of deeply discounted prices.

Another key reason for the improving outlook: a temporary $7,500 tax credit for first-time homebuyers passed by Congress this summer. The credit essentially works out to a 15-year, interest-free loan.

Many in the industry "are sensing that home sales are nearing a turning point," Sandy Dunn, a homebuilder from Point Pleasant, W.Va. and the trade group's president, said in a statement. New home sales likely will stabilize by year-end, Seiders predicts.

All three components of the index improved, with the largest gain in the index of builders' sales expectations over the next six months. That gauge rose by six points to 30.

Gains in builder confidence were seen across the United States, with the largest gain in the Northeast, where confidence rose by six points.

Homebuyers take another hit
Still, many in the industry are worried about the cancellation of popular programs that let sellers channel down payment money to cash-strapped homebuyers via charities. Those seller-financed down payment assistance programs were eliminated in the housing bill passed over the summer because homebuyers who used them had high default rates.

The latest housing market index reflects a survey of 461 residential developers nationwide, tracking builders' perceptions of current market conditions and expectations for home sales over the next six months.

Index readings higher than 50 indicate positive sentiment about the market. The seasonally adjusted index has been below 50 since May 2006 and has been below 20 since April.