Jan. 19 (Bloomberg) -- Confidence among U.S. homebuilders unexpectedly dropped in January to the lowest level since June, a sign the housing recovery may stall in coming months.
The National Association of Home Builders/Wells Fargo index of builder confidence decreased to 15 from 16 the prior month, the Washington-based group said today. Readings below 50 mean most respondents view conditions as poor.
The report showed traffic slowed to a 10-month low, indicating the government’s extension and expansion of its first-time buyer program has, so far, not drawn in new demand after propelling total sales to an almost three-year high in November. A projected record 3 million foreclosures this year may also pressure prices, making it more difficult for homebuilders to turn a profit.
“The past strength in the housing market was inflated by the tax credit,” said David Sloan, chief U.S. economist at 4Cast Inc. in New York, who was the only economist surveyed to foresee a drop in the index. “We’re seeing a bit of payback from those over-inflated levels.”
Stocks held earlier gains following the report, while builder shares retreated from prior highs. The Standard & Poor’s 500 Index was up 1 percent to 1,147.18 at 1:16 p.m. in New York. The S&P Supercomposite Homebuilder Index gained 0.8 percent after having been up as much as 1.1 percent before the report.
Less Than Forecast
The builder confidence index was forecast to increase to 17 this month, according to the median forecast of 45 economists surveyed by Bloomberg News. Projections ranged from 14 to 18. The index, first published in January 1985, averaged 15 last year.
The builders group’s index of current single-family home sales fell to 15 in January from 16 in December.
The gauge of buyer traffic dropped to 12, the lowest level since March, from 13. A measure of sales expectations for the next six months held at 26.
“Factors beyond our control, including consumer concerns about job security and competition from foreclosed homes on the market, are still impeding demand for new homes at this time,” Joe Robson, the group’s chairman and a builder from Tulsa, Oklahoma, said in a statement.
All four regions showed a drop in sentiment, led by the West, which fell to 16 from 19. In the Northeast, confidence decreased to 22 from 23, in the Midwest it fell to 11 from 12 and dropped to 16 from 17 in the South.
The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to gauge the outlook for the next six months.
“Consumers are still waiting to see significant positive signs of improvement in employment and confidence, and this is slowing buyers’ return to the market,” David Crowe, the NAHB’s chief economist, said in a statement.
Rising foreclosures are adding to inventory and may discourage builders. A record 3 million U.S. homes will be repossessed by lenders this year as high unemployment and depressed home values leave borrowers unable to make their house payment or sell, according to a RealtyTrac Inc. forecast on Jan 14.
Last year there were 2.82 million foreclosures, the most since RealtyTrac began compiling data in 2005.
“A lot of inventory is still coming onto the market from distressed sales and that is borrowing demand from new homes,” Julia Coronado, a senior economist at BNP Paribas in New York, said before the report. “Improvement in construction will be gradual in the initial stages.”
President Barack Obama on Nov. 6 extended an $8,000 first- time buyer credit that was due to expire at the end of the month and expanded it to include current homeowners. The extension covers closings through June as long as contracts are signed by the end of April. Still, the measure may have pulled sales forward, depressing demand in coming months.
Sales of new houses dropped 11 percent in November, the month the government’s tax credit was due to expire. A jump in purchases of existing homes pushed total sales up to a 6.895 million annual pace, the most since March 2007.
Housing starts, which jumped 24 percent from April to July as builders rushed to satisfy buyers taking advantage of the credit, will probably cool in coming months as sales slow.
A report from the Commerce Department tomorrow may show builders broke ground on 575,000 houses at an annual pace in December, little changed from 574,000 a month earlier, according to the median forecast of economists surveyed by Bloomberg.
November starts were 75 percent below their peak of 2.27 million pace reached in January 2006.
KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, is among those struggling. The company last week reported a pretax loss of $91 million on declining revenue for the fiscal fourth quarter that ended Nov. 30.
KB Home’s orders rose 12 percent to 1,446 from 1,296 in the year-earlier quarter, while completed sales dropped 22 percent to 3,042, according to the report. The average price declined 12 percent to $203,400.
KB Home is “not going to make money in the first quarter” and plans to “restore profitability” in the second half of 2010, Chief Executive Officer Jeffrey Mezger said Jan. 12 in a conference call with analysts and investors.
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