Builders index lowest in a year

LITTLE ROCK — Builders turned more pessimistic in July than forecast, a sign the expiration of a government tax credit will depress home construction.

The National Association of Home Builders/Wells Fargo confidence index dropped to 14 this month, the lowest level since April 2009, from 16 in June, data from the Washington based group showed Monday. Readings lower than 50 mean more respondents said conditions were poor.

The retreat in sales follows the April 30 expiration of a deadline to sign purchase agreements and qualify for a tax credit worth as much as $8,000. Some sales using the tax credit are continuing because buyers who signed contracts by April 30 have until Sept. 30 to complete purchases. But there’s been little rebound in the market.

“The pause in sales following expiration of the home buyer tax credits is turning out to be longer than anticipated due to the sluggish pace of improvement in the rest of the economy,” said David Crowe, the builders group’s top economist.

Crowe does expect new home sales will improve a modest 10 percent this year from last year’s depressed levels.

With mounting foreclosures adding to housing inventory and unemployment forecast to end the year at 9.5 percent according to economists surveyed by Bloomberg News, a housing recovery will take time to develop.

“The housing sector is going to be in a hangover for a few months and it looks like it will be quite a nasty one,” said David Sloan, a senior economist at 4Cast Ltd. in New York, who correctly forecast the decline. “This will weigh on growth in the third quarter and well into the fourth quarter as well.”

The index was forecast to fall to 16 from a previously reported 17 in June, according to the median of 48 projections in the survey. Economists’ estimates ranged from 14 to 18. The gauge, which was first published in January 1985, averaged 15 last year.

The builders group’s index of current single-family home sales fell to 15 from 17. The gauge of buyer traffic dropped to 10 from 13 the prior month. A measure of sales expectations for the next six months decreased to 21, the lowest level since March 2009, from 22.

“We continue to see a lull in home buying activity following the expiration of the federal home buyers tax credit program as many of the sales that would have occurred this summer were likely pulled forward to meet the program’s deadline,” Bob Jones of Bloomfield Hills, Mich., the chairman of the home builders association, said in a statement. “In addition, builders are reporting continuing hesitancy regarding home purchases due to uncertainty in the overall economy and job markets.”

Housing starts fell 10 percent in May after the expiration of the contract-signing deadline the prior month.

Builders compete with inventories of existing homes being swelled by mounting foreclosures. Home seizures climbed 38 percent in the second quarter from a year earlier, RealtyTrac Inc. saidlast week, putting lenders on pace to claim more than 1 million properties this year. Information for this article was contributed by John Gittelsohn of Bloomberg News and Alan Zibel of The Associated Press.