Home-Builder Confidence Sours
As Existing Spring Sales Slowed

The National Association of Home Builders' index for U.S. sales of new, single-family homes fell in August to 32, its lowest point since February 1991 when the economy was in recession.

Meanwhile, the slowdown in the once-sizzling housing market is spreading, with 28 states and the District of Columbia reporting spring sales declines, led by big drops in former boom areas of Arizona, Florida and California, according to a report from the National Association of Realtors.

The housing market index, compiled by the NAHB and Wells Fargo, was down seven points from July's unrevised level of 39. August was the seventh straight month of declining builder confidence, as gauged by the index.

"It's important to recognize that home sales and housing production are subsiding from record levels a year ago, and those levels clearly were unsustainable," said NAHB Chief Economist David Seiders. "We expect the erosion in market activity to continue through most of this year before stabilizing in 2007."

Builder sentiment tends to contract more than actual sales and production, Mr. Seiders said. For their part, buyers should be optimistic about the market, he said, citing a healthy economy, historically low interest rates, slowing price appreciation and builders' sales incentives.

The NAHB economist attributed home builders' dimming view of the market to two main factors: increasing sales cancellations and substantial inventory growth for both new and existing homes. More potential buyers are taking a "wait-and-see" approach to the market, and high energy prices also seem to be weighing on demand, he said. In addition, real-estate investors and speculators are withdrawing as expected after a big influx in 2004-05, he said.

The index was based on a survey of 436 home builders, who answer questions about sales prospects now and in the near-term. When the Housing Market Index is under 50, it means the number of builders who see "poor" sales outnumber those who see "good" sales. It has been under this threshold since May.

Within the NAHB's Housing Market Index, the component for present sales of single-family homes fell seven points in August to 36. Meanwhile, expectations for sales in the next six months decreased six points to 40, and the traffic of prospective buyers fell six points to 21, the NAHB said.

The NAHB index fell during August in all four regions of the country. It was down three points to 34 in the Northeast, down five points to 15 in the Midwest, down nine points to 41 in the South and down ten points to 42 in the West. The numbers are adjusted for seasonal variations.

Decline in Sales

Nationally, existing-home sales were down 7% in the April-June quarter this year compared with the same period in 2005, the National Association of Realtors said Tuesday in its latest state-by-state look at housing conditions around the country.

The survey showed that the biggest declines occurred in states that had been enjoying red-hot sales during the five-year housing boom. The five biggest declines this spring compared to the April-June period of 2005 were Arizona, down 26.9%; Florida, down 26.7%; California, down 25.3%; Virginia, down 23.9%, and Nevada, down 23.5%.

The report depicted a tale of two housing markets, with former boom areas experiencing declines and other areas of moderate sales gains during the boom years experiencing strong growth. In all, 20 states had sales gains in the spring, led by Alaska, which enjoyed a 48.6% jump in sales; followed by Arkansas, up 17.9%; Texas, up 11.3%; North Carolina, up 11%, and Vermont, up 9.1% compared to the spring of 2005.

"States with moderately priced areas that have experienced healthy job creation are seeing sales gains," said David Lereah, chief economist for the Realtors. "The economic backdrop remains favorable for the housing market, which is helping home sales level out."

In a separate survey of price changes in 151 metropolitan areas, the Realtors reported that 26 metro areas experienced outright price declines while 37 areas were still enjoying double-digit price increases.

The biggest price drops in percentage terms were in Danville, Ill., where home prices fell by 11.2% in the spring compared with the spring of 2005, and the Detroit area, where home prices were down 8%. At the other end of the scale, prices rose the most in Baton Rouge, La., reflecting a 27.3% increase, followed by Ocala, Fla., where prices rose by 25.3%, and the Virginia Beach, Va., area, where prices were up 23.6% compared with the spring of 2005.

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