Builders' hopes for US housing recovery again look bleak

18 April 2011 18:18  [Source: ICIS news]

WASHINGTON (ICIS)--Homebuilders’ hopes for a turnaround in the housing sector have fallen anew, a national trade association said on Monday, as contractors are losing confidence that new home construction will revive anytime soon.

The National Association of Home Builders (NAHB) said that its survey of member contractors for April found that their market confidence has declined one point to 16 from the brief uptick to 17 seen in March.

NAHB chairman Bob Nielsen said that the renewed downturn in builders’ confidence levels was in part attributed to belt-tightening polices being discussed in Congress and by the Obama administration as the federal government struggles to find ways to cut the annual budget deficit and reduce the burgeoning national debt, now at around $14,000bn (€9,660bn).

Among the debt-reduction concepts being discussed was elimination of the longstanding federal income tax credit for home mortgage interest payments and local real estate taxes.

Eliminating those deductions would raise considerable revenue for the federal government, but home builders warn that the loss of those tax benefits for prospective home buyers would further depress the already moribund new-home construction sector.

“Many consumers remain skittish about the health of the housing market and overall economy,” Nielsen said, “particularly in view of recent legislative and regulatory proposals that could make it much harder to get a mortgage.”

If home buyers could no longer count on the tax savings of mortgage interest and local real estate deductions, lenders would likely impose higher criteria for borrower income levels and larger down-payments, making it harder for prospective buyers to qualify for a home loan.

In addition, “The spring home buying season is getting off to a slow start due to persistent concerns about home values as more foreclosures seem to be hitting the market”, said NAHB chief economist David Crowe.

Nielsen also noted that “builders are competing against a large number of foreclosed and stressed properties on the market, which are holding down prices and appraisals and making it tough for potential buyers to sell their existing homes”.

The NAHB survey of contractors, known as the housing market index (HMI), is a compilation of home builders’ current sales of single-family homes, the number of prospective home buyers visiting model homes, and contractors’ expectations for home sales over the next six months.

On the 1-100 HMI scale, a reading of 50 or above indicates that home builders are confident about their prospects over the next six months.

The 26-year-old index hit an all-time low of 8 in January 2009, a significant and unprecedented decline from index numbers that had held steady in the mid-60s and even reached 70 at times during the housing boom years of 2002-2005.

The HMI climbed back to readings of 19 and 22 in April and May last year when the US government was offering an $8,000 tax credit to home buyers.

But when that stimulus measure and its carry-over effect evaporated after May, the index nose-dived again. 

The index has been in the 14-16 range since the middle of 2010 and, except for the March reading of 17, it has held at 16 for five of the last six months.

The US housing industry - especially construction of single-family homes - is a key downstream consuming sector for chemicals and resins.

According to the American Chemistry Council (ACC), each new single-family residence is said to account for some $16,000 in chemicals or derivative products such as plastic pipe, adhesives, insulation, roofing materials, synthetic fibres, paints, coatings and adhesives, among others.

($1 = €0.69)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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