UPDATE: US Builder Stocks Down As Index Shows Continued Pain
June 15 2009 - 2:06PM
Dow Jones News
For home builders, the third time is not the charm.
After climbing for two consecutive months, the monthly National
Association of Home Builders/Wells Fargo Housing Market Index
dipped by 1 point to 15 out of 100 in June, showing the fragile
market must continue its search for stability as it limps through
the worst downturn in decades.
The rating is well below December 1998's high of 78, but nearly
double the low of 8 in January.
"I'm not saying that home building is still headed straight down
like it had been for months and months, but I'm hesitant to say
that we're bouncing off the bottom," said Joe Snider, a vice
president and senior credit officer with Moody's Investors Service.
"I think it's more a case of we're crawling along the bottom."
That the end is not in sight weighed on the battered sector's
stocks Monday afternoon. Standard Pacific (SPF) led the decline,
its shares plunging nearly 11% to $2.13, while Hovnanian
Enterprises (HOV) fell 5.9% to $2.40 and KB Home (KBH) lost 6% to
$13.25. The Dow Jones US Home Construction Index was recently down
by 2.52%.
The unexpected decline - some industry watchers expected it to
at least hold steady - shows recent optimism has been dashed as
mortgage rates tick upward and the industry faces the possibility
of losing two tax credits that have boosted customer traffic. The
federal $8,000 credit is for qualified first-time buyers closing
before Dec. 1, and there's up to $10,000 for buyers of new homes in
California -- funds that are said to be nearly exhausted. Freddie
Mac (FRE) data, meanwhile, showed the average on a 30-year mortgage
loan was 5.59% last week - 73 basis points higher than the average
four weeks earlier of 4.86%, an advance that could hurt housing
demand.
The sector also finds itself competing with mounting
foreclosures, "which are being given away at a song," Snider
pointed out. There's plenty to compete with: Barclays Capital
estimates new foreclosures started this year at 2.8 million, with
three million expected in 2010. Foreclosures and other distressed
deals - some even built by the builders themselves - are weakening
appraisal values, forcing builders to either cut the price or risk
losing a valuable deal.
The closely watched NAHB index, which has gauged builder
confidence for more than two decades, did see some stability. Two
of the three component indexes were unchanged, including the index
gauging current home sales - steady at 14 - and the one measuring
traffic of prospective buyers, which remained at 13. But the index
measuring expectations for the next six months slipped one to 26,
which "points to some waning optimism regarding demand trends,"
noted JPMorgan analyst Michael Rehaut. "Given continued tight
credit conditions, rising foreclosure trends, and still relatively
weak demand amid the current challenging economic environment, we
believe this component will likely continue to fall over the next
several months," he added.
Regionally, the decline was focused in the South, the nation's
largest housing market. It fell 3 points to 15, something the trade
group is unable to explain. The Northeast, which is seeing weakness
from the financial meltdown, climbed one point to 20. The West
added two points to 14.
Another report detailed similar weakness. In its June survey,
John Burns Real Estate Consulting said 306 building executives from
more than 200 companies reported sales remained "very weak" in May,
and that prices continue to decline.
"Builder contacts in a few locations are telling us that traffic
and sales are off in the first weeks of June, and they suspect the
end of the spring selling season may be near," said Jody Kahn, vice
president of the Irvine, Calif.-based firm.
Kenneth Leon, an analyst with Standard & Poor's Equity
Research, said the results gauge sentiment and he's waiting for
data on housing starts, which he considers a better barometer of
the industry's health, before deciding if recovery has stalled.
"We're talking about the mood swings of home builders," he said.
Housing starts are "measured economic data."
-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193;
dawn.wotapka@dowjones.com