Homebuilders: Confidence falls sharply

The National Association of Home Builders blames the financial crisis for the new low.

Last Updated: October 16, 2008: 2:18 PM ET

LOS ANGELES (AP) -- The business outlook among homebuilders plunged to an all-time low this month, as the U.S. financial crisis further sapped their confidence in a near-term housing market recovery, an industry trade association said Thursday.

The National Association of Home Builders/Wells Fargo housing market index, started in January 1985, tumbled three points to 14 in October. The index stood at 17 in September after registering a one-point increase in August.

Index readings higher than 50 indicate positive sentiment about the market. But the index has drifted below 50 since May 2006 and below 20 since April.

The Washington-based association said the latest builders' survey reflects its members reaction to the financial woes on Wall Street, rising unemployment and weakness in consumer confidence.

The group called on lawmakers to enact an economic stimulus package with incentives for homebuyers.

"The impacts of the record-breaking housing contraction have spilled over to other key sectors of the economy and weighed heavily on financial markets, and stabilizing housing is now the best chance we have to limit the severity of recession," NAHB Chief Economist David Seiders said.

Builders have been hurting from the combination of falling home prices, less demand for new and preowned homes, tighter lending standards and a torrent of foreclosed properties competing for buyers.

Major public builders such as D.R. Horton Inc. (DHI, Fortune 500), Lennar Corp. (LEN, Fortune 500), and Toll Brothers Inc. (TOL, Fortune 500), have seen their stocks hammered as housing woes have deepened.

A housing stimulus package signed into law by President Bush this summer failed to spark the kind of home buying spree many builders had hoped for. Some major builders have said the plan's temporary $7,500 tax credit for first-time home buyers was ill-conceived because it essentially worked out to a 15-year, interest-free loan.

Some builders also decried the cancellation this month of programs that let sellers channel down payment money to cash-strapped home buyers via charities. The programs were eliminated by Congress because homebuyers who used them had high default rates.

The latest index marks deepening pessimism among builders in just a few weeks. Last month, the trade association's president, Sandy Dunn, waxed far more optimistic, remarking that builders were sensing home sales were nearing a turning point.

At the time Seiders projected sales would likely stabilize by year-end.

Builders' October survey responses reflected a far less rosy outlook.

Their gauge of current sales conditions fell three points to 14, traffic by prospective buyers dropped two points to 12, and sales expectations over the next six months plunged nine points to 19, the NAHB said.

Declines in builder confidence were seen across the United States, with the biggest drops in the Northeast and South, where confidence declined by four points.

The index reflects a survey of 446 residential developers nationwide, tracking builders' perceptions of current market conditions and expectations for home sales over the next six months.

Shares of Fort Worth, Texas-based D.R. Horton fell 62 cents, or 8.5%, to $6.70 in morning trading Thursday.

Miami-based Lennar's shares were down 53 cents, or 6%, to $8.23, while shares of Toll Brothers were down $1, or 5.4%, to $17.62.