Homebuilder Confidence Declines

Measure of builder perceptions about the housing market reaches its lowest level since May 2003.
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Homebuilder confidence declined sharply for November, reaching its lowest levels in almost two and a half years, amid weakening consumer confidence levels and rising mortgage rates.

The National Association of Home Builders/Wells Fargo Housing Market Index fell 8 points from October to 60, a level that hasn't been reached since May 2003. The index, which tracks builder perceptions of current single-family home sales and expectations for the next six months, hasn't had such a steep one-month decline since October 2001, following the Sept. 11 terrorist attacks.

Still, the NAHB noted that the level is well above the midpoint of 50, indicating that a majority of builders still see positive conditions.

"It's important to keep today's report in perspective," said NAHB President Dave Wilson, in a statement. "Many builders still have substantial backlogs of unfilled orders and will remain quite busy in coming months. But we're well aware that some slowing of demand is inevitable following the record-breaking sales activity that has prevailed for some time."

Each of the HMI index's component indices posted declines for the month. The index gauging current sales activity fell 8 points to 66, while the index gauging sales expectations for the next six months dropped from 73 to 64. The index gauging traffic of prospective buyers fell 5 points to 46, the NAHB said.

Builder confidence fell across all regions of the country, with the index the lowest for the Midwest at 38. The West remained the nation's stronghold with an index of 78, though that figure was down 13 points from October.

The NAHB cited consumer attitudes for the lower confidence reading, as buyers became jittery from the recent hurricanes, higher energy prices and rising mortgage interest rates. Fixed rates averaged 6.35% in the survey period, compared with 6% in the October period.

The lower confidence comes as investors have grown increasingly nervous about homebuilders' demand following several years of a red-hot housing market. Last week, luxury-home builder

Toll Brothers

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warned that demand has been weaker than expected, sending the sector's shares plunging. But on Wednesday,

D.R. Horton

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signaled growth is continuing, reporting a 61% increase in fiscal fourth-quarter earnings and raising its fiscal 2006 forecasts.

NAHB Chief Economist David Seiders said a huge drop isn't in the cards.

"The sharp decline in the HMI probably overstates the actual degree of deterioration in the single-family market, and it's most likely that we're engaged in an orderly cooling process that will lead to somewhat lower home sales and production in the future," Seiders said in a statement. "We're looking for a 5 or 6% decline in home sales next year, compared to 2005."