Builder confidence slides in August

The HMI, which gauges builder perceptions of current single-family homes and sales expectations for the next six months, declined seven points to 32, its lowest level since February 1991.

“Two big factors are coloring builders’ perceptions of the market right now – rising sales cancellations and substantial growth in inventories of both new and existing homes,” said NAHB Chief Economist David Seiders in a news release. “These factors are largely the result of an increasing number of potential buyers adopting a ‘wait-and-see’ attitude because of uncertainty about where the housing market is headed, and record-high energy costs also appear to be weighing on housing demand.

“We’re also seeing an anticipated withdrawal of investors/speculators from the market, following a major influx in 2004–2005.”

There are three components to the index. The component gauging current single-family-home sales fell seven points to 36. The component gauging sales expectations for the next six months and the component gauging traffic of prospective buyers each fell six points to 40 and 21, respectively.

Any score more than 50 indicates that more builders view sales conditions as good than poor.

The index also highlighted regional declines, including a five-point decline to 15 in the Midwest.

“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,” Seiders said. “We expect the erosion in market activity to continue through most of this year before stabilizing in 2007.”

He noted, however, that the economy remains in fundamentally good shape, with mortgage rates near historic lows and decreasing house price gains.

“Such favorable market conditions certainly are reason for optimism among those in the market to buy new homes,” Seiders said.