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Business & Technology

Home builders losing confidence in housing market

June 16th, 2010 4:58 am by Associated Press

WASHINGTON — Home builders are losing confidence in the U.S. housing market now that government incentives that spurred home sales have ended.

The National Association of Home Builders said Tuesday its housing market index fell to 17 in June, sinking five points after two straight months of increases. It was the lowest level since March.


Builders had been more optimistic earlier in the year when buyers could take advantage of tax credits up to $8,000. Those incentives expired on April 30, although buyers with signed contracts have until June 30 to complete their purchases.

Thanks to the credits, sales of new homes rose nearly 15% in April. That followed a nearly 30% surge in March, the biggest monthly increase in 47 years.

Experts anticipate home sales will slow in the second half of this year. In addition, high unemployment and tight mortgage lending continue to keep many buyers on the sidelines.

The drop in activity is "a wake-up call to the fact that the market will struggle to stand on its own two feet without the tax credit," wrote Paul Dales, an economist with Capital Economics. "The double-dip in both activity and prices that we have been expecting for some time appears to have begun."

Another problem for the building industry is that lenders are reluctant to make construction loans to developers. The builders group is pressing for legislation that would require the Treasury Department to guarantee loans made to developers.

But now that they are gone, "the reduction in consumer activity may have been more dramatic than some builders had anticipated," said Bob Jones, a builder from Bloomfield Hills, Mich., and the Washington-based trade group's chairman.

Many experts anticipate home sales will slow in the second half of this year. In addition, high unemployment and tight mortgage lending continue to keep many buyers on the sidelines.

The trade group's index is made up of three components. The reading for current sales conditions fell one point to 16, while the index measuring expectations for the next six months fell two points to 26. The index measuring foot traffic from prospective buyers held steady at 13.

The report reflects a survey of 344 residential builders nationwide.

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