The National Association of Home Builders has reported that builders' monthly confidence index has declined in August 2010. This marks the third month in a row that the home building construction industry shows a lack of belief in the housing market. The index dropped to 13, making it the lowest score since March of last year.
According to industry observers, the poor economic condition of the country and the onslaught of cheap foreclosed dwellings that have discouraged people from purchasing new houses both played major roles in the industry's declining confidence. The score of 13 is way below the confidence threshold of 50. April 2006 was the last time builders' confidence index reached over 50.
The continuous decline of industry confidence was primarily blamed by analysts on fewer homebuyers investing in new residences. This is despite the fact that mortgage rates are at record lows and prices of residential properties have stabilized in most markets, allowing people with good credit history to qualify for loans. Analysts explained that the reluctance of homebuyers to make purchases is primarily due to high unemployment rates and stricter credit rules. In addition, home prices are expected to decline again in the coming months.
Most home building construction industry members believe that the confidence index will remain way below 50 unless the condition of the job market gets better. Majority of consumers are wary of making any residential purchase with the housing sector exhibiting a weak recovery and the job market remaining in poor condition. This sentiment is highly evident in the home building activity for June which recorded its lowest level since the start of the fourth quarter of 2009.
For the small number of people who are buying homes, most of them opt for cheap foreclosed dwellings, making hardly any contribution to the house building sector. A survey of homebuilders showed how much foreclosures have hurt the residential construction industry, with 90% of respondents blaming foreclosures for the industry's woes.
The confidence of the home building construction business is expected to continue to decline for the rest of the year, with analysts predicting that the only way the confidence index will improve is for the job market to show some positive movements.
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