Home Builder Sentiment Hits Record Low

Pervasive fears of job loss, financial market upheaval and recession hammered U.S. home builder sentiment to a record low in November, the National Association of Home Builders said on Tuesday.

The NAHB/Wells Fargo Housing Market index slumped five points to 9 in November, the lowest since the measure was started in January 1985. Readings below 50 mean more builders view market conditions as poor than favorable.

"These are awful numbers," said David Sloan, chief economist, North America, for 4CAST Inc in New York. "This suggests a weak housing market is taking a significant fresh hit from the credit crunch so we're going to see even more extreme weakness in the housing sector in the next few months."

The last time there was a larger one-month drop in the confidence measure was a six points drop in August 2006 to 33 from a reading of 39 the prior month.

Economists polled by Reuters had forecast the index would stay at 14 in November, the previous all-time low.

"Today's report shows that we are in a crisis situation," NAHB Chairman Sandy Dunn said in a statement. "Tremendous economic uncertainties have driven consumers from the housing market, and it's going to take some major incentives to bring them back," she said.

Even as fear of unemployment escalates and saps consumer confidence, the housing market battles a burdensome supply of unsold homes inflated by mounting foreclosures.

Lenders also have pulled back the reins in offering new loans at the same time many potential consumers resist buying now what could cost less later.

Existing U.S. single-family home prices in metro areas fell 9 percent in the third quarter compared with the same quarter last year weighed down by foreclosure sales, the National Association of Realtors reported earlier on Tuesday.

U.S. home prices through August sank more than 20 percent from their peak in the summer of 2006, according to Standard & Poor's/Case-Shiller home price indexes. Many economists are looking for an additional 10 percent price erosion.

Treasury Secretary Henry Paulson on Tuesday said the housing correction is at the root of the economic downturn and financial market stress, and that the slowing economy now may prolong the correction.

Three million U.S. jobs in construction and related industries have been wiped out in the downturn, NAHB Chief Economist David Crowe said in the statement.

"Congress should consider significant consumer incentives such as expanding the first-time home buyer tax credit and providing a government buy-down of mortgage interest rates for home purchasers," he said. "Both policies were successfully combined in the 1970s to stimulate home buyer demand, and could get housing and the national economy moving again."

Builder confidence fell in every region this month and readings were well below a year ago.

In the hard-hit West region, for example, the five-point drop in the sentiment index to 6 put it one-third of the 18 reading in November 2007.

The trade group's index gauging current sales conditions fell six points to 8, a record low.

Its measure of prospective buyer traffic fell four points to 7, also a new floor.

The index of sales expectations in the next six months held at the all-time low of 19 set in October.

"While some people are feeling that the housing market has fallen so far it doesn't have that much more downside, I think these numbers suggest that there is scope for it to continue to decline significantly," Sloan said.

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