Builders’ outlook for the industry in May was unchanged at 16, the National Association of Home Builders said Monday. It has been at that level for six of the past seven months.
Any reading below 50 indicates negative sentiment about the market. The index hasn’t been above that level since April 2006.
When asked about where they see sales of single-family home heading over the next six months, the builders offered their most pessimistic outlook since September.
Last year the number of people who purchased previously owned homes fell to a 13-year low. Sales of new homes were even worse, hitting the lowest level on records dating back nearly a half-century.
Builders are struggling to compete because foreclosures are forcing down prices for previously occupied homes. The median price of a new home was about 34 percent higher in March than the median price for a re-sale. That’s more than twice the markup in healthy housing markets.
In response, builders are breaking ground on fewer homes. The seasonally adjusted annual pace in March was 549,000 new homes per year, less than half the 1.2 million units annually that economists consider healthy. The Commerce Department will release the April data on new-home construction Tuesday.
“You can get existing homes at a much cheaper price now, mainly due to foreclosures,” said Paul Dales, senior U.S. economist at Capital Economics. “New homes really aren’t competitively priced.”
Fewer new homes mean fewer jobs. Each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the builders’ trade group.
The trade group cited a handful of factors weighing on the housing market. Some were familiar — tighter lending standards, high unemployment and an increase in the number of homes sold at foreclosure.
But the builders’ group also noted that higher gas prices were creating “consumer anxiety and reluctance to go forward with a home purchase,” said the group’s chairman, Reno, Nev., home builder Bob Nielsen.
About 90 percent of the builders surveyed said potential buyers are also holding back on purchases because they are concerned they won’t be able to sell their current home at a favorable price.
Economists expect home prices will continue to struggle this year before a modest recovery takes hold. The hardest-hit states, including Arizona, California, Florida and Nevada, are inundated with foreclosures and short sales, when a lender allows a borrower to sell their property for less than what is owed on the mortgage.
Builders had been hopeful that a strong spring season, traditionally the best time for home construction, could help power a turnaround. But that has yet to happen.
Regionally, the West saw a two-point gain and the South received a one-point gain in their index of construction activity, both to 16. The Midwest held steady at 14. The Northeast fell five points, to 15.
The index gauging current conditions rose one point, to 16, while the recorded foot traffic of prospective buyers also rose by a point, to 14. But the outlook for the next six months fell two points, to 20. That was the lowest level in eight months.
The survey is analyzed by the builders’ trade group and Wells Fargo. This month’s survey was based on the responses of 339 builders.