Homebuilder Sentiment Still Sluggish

NEW YORK (TheStreet) - Homebuilder sentiment held steady at a low reading in August as the usual suspects -- an oversupply of homes, inaccurate appraisal values and tight lending -- kept home purchasers at bay.

Construction

"Builders continue to confront the same major challenges they have seen over the past year, including competition from the large inventory of distressed homes on the market, inaccurate appraisal values, and issues with their buyers not being able to sell an existing home or qualify for favorable mortgage rates because of overly tight underwriting requirements," said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a homebuilder from Reno, Nev.

Nielsen said 41% of survey respondents indicated they had lost sales contracts because would-be buyers were unable to sell the homes they currently lived in.

"The uncertain economic climate and concerns about job security are discouraging many potential buyers from exploring a home purchase at this time," said NAHB Chief Economist David Crowe. "While buying conditions are very favorable in terms of prices, interest rates and selection, consumers are worried about what the future will bring, and builders are echoing those sentiments in their responses to the HMI survey."

The NAHB's survey came in flat with an August reading of 15, as economists had expected. Homebuilder sentiment had fallen to an eight-month low of 13 in June as a perfect storm of weak existing-home prices, rising material costs, distressed property sales and sluggish consumer confidence brewed in the housing market.

The NAHB Housing Market Index measure builders perceptions of current single-family home sales and sales expectations for the next six months. Any reading below 50 indicates poor sentiment. The index has not been above 50 since April 2006.

The housing and homebuilding sector is well off its year-ago spring peak, ahead of expiring tax credits, and is only slightly higher than at the beginning of 2010.

Whereas other sectors have begun an economic rebound in earnest, the housing sector continues to lag as a bloated supply of homes for sale -- both newly built and previously owned -- coupled with depressed pricing from foreclosures pressure the market.

The SPDR S&P Homebuilders ( XHB), an exchange-traded fund that tracks the homebuilder sector, remains around 60% off its peak of $46.08 in early 2006. The iShares Dow Jones U.S. Home Construction ( ITB) ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

On Tuesday, the Commerce Department is expected to say that homebuilders began construction on 3.3% fewer homes in July, while applications for building permits fell 2.9% month over month, adding to builder woes. Building permits are viewed as an indication of future home construction.

Among individual builders, stocks were mostly higher morning, in line with a general market upswing and thanks to the as-expected report on homebuilder sentiment.

PulteGroup ( PHM) jumped 5.1%, Lennar ( LEN), largely considered a leader among the homebuilders, added 4.5%, D.R. Horton ( DHI) rose 2.6%. and Toll Brothers ( TOL) gained 3.2%.

Small-cap builders KB Home ( KBH), Beazer Homes ( BZH) and Hovnanian Enterprises ( HOV) were all higher as well.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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