Builder confidence in the new home market was shaken in July, slumping to its lowest level since the depths of the economic downturn last year as government stimulus programs for buyers ended and the economic recovery remained lackluster.
The National Assn. of Homebuilders' housing market index dropped for the second month in a row in July to 14, its lowest level since April 2009. Any number under 50 indicates that more builders view conditions as poor than good.
Possibly fueling that pessimism was a record drop in new home sales in May. Sales of new homes plummeted 33% that month as a popular tax credit for buyers expired April 30.
The federal tax credit, which offered up to $8,000 for certain buyers, had been fueling sales of new homes during the spring. Despite rock-bottom interest rates and the affordability of new homes, which builders are designing and pricing to compete with foreclosure properties, many economists are fretting that buyers won't return in force this year.
"The expiration of the tax credit is clearly hurting the industry," said Michael D. Larson, a housing and interest rate analyst with Weiss Research. "But the deterioration in the broader economy and the dismal labor market are much more powerful — and negative — forces. With growth slumping again, and unemployment hovering near the double digits, we simply don't have the necessary ingredients for a sustainable recovery in housing."
Another measure of builder confidence will be released Tuesday, when the federal government reports on the number of new buildings started in June. Starts dropped 10% in May from April, and economists surveyed by Bloomberg News expect another decline.