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Home Builders Still Struggling from Foreclosures List Prices

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By : John Cutts    99 or more times read
Home builders are still struggling from the effects of low foreclosures list prices, as shown in the decline in builder confidence in March and the decline in total sales of new homes in January.

According to the National Association of Home Builders, its residential market index which monitors builder confidence dropped by two points in March, back to the January level of 15 points. Index numbers below 50 means negative outlook for the housing market. The index has not gone beyond 50 since April 2006.

The 477 home builders surveyed said they are getting doubtful about improvements in new home sales because of the still fierce competition from foreclosures. They said the pace of foreclosures has been declining compared to the previous month, but the volume is still higher than foreclosures in 2009.

Bob Jones, chairman of NAHB, said that the continued flow of low-priced distressed homes is pushing down new-house appraisals and is making it difficult for homeowners to sell their homes so they can move up.

BMO Capital Markets economist Jennifer Lee said that the home building industry has again entered another turbulent phase after experiencing some stability over the past few months. Projections of foreclosures list growth, lack of substantial job creation and the expiration of federal supports to the housing market are making builders concerned about their situation.

The builder outlook even pushed down the share prices of a group of 12 builders that include Pulte Homes and D.R. Horton.

The decline in the number of prospective buyers indicated the waning impact of the federal tax credits. With unemployment rates rising in many places, prospective buyers have opted not to pursue their home buying plans. The gauge for prospective buyers dropped in March to 10, the lowest point over a 12-month period.

In addition, the measure for expectations for sales over the next 6 months also dropped to 24, again the lowest point since the middle of last year. This measure was 27 in February.

Builder confidence declined in the Midwest from 13 to 10 and in the South from 19 to 18 while it rose in the Northeast from 18 to 23 and in the West from 14 to 15.

According to Bloomberg, the national unemployment rate is expected to drop from 9.7 percent in January to 9.5 percent at the end of the year. It is hoped that the projected slight improvement in the employment situation would also lessen the effect of foreclosures list prices on the home building industry.

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