http://quote.bloomberg.com/apps/news?pid=10000006&sid=alQUjPKVe8pI&refer=home
June 19 (Bloomberg) -- Confidence among U.S. homebuilders dropped this month to the lowest in more than 11 years as higher mortgage rates caused sales to fall. The National Association of Home Builders/Wells Fargo's index of builder confidence declined to 42, the lowest since April 1995, from 46 in May, the Washington-based association said today. A number below 50 means pessimists outnumber optimists. The index hasn't increased for the last eight months, the longest such stretch since 1994. Fewer home purchases and less building this year will erode consumer spending and slow the pace of economic growth, economists said. Today's report also showed a decline in builders' sales expectations and traffic of prospective buyers. ``Housing has been on a weakening trend for some time,'' Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report. ``It's a reasonably well-contained, orderly, probably longer-lasting decline in the housing sector.'' The National Association of Realtors forecasts that sales will fall after five record years as higher interest rates and more inventory prompt builders to cut profit projections. The median forecast in a Bloomberg News survey of 24 economists called for a reading of 45 this month. The index, which averaged 67 in 2005, has dropped 30 points in 12 months. A measure of sales expectations for the next six months fell to 50 from 55, and the index of buyer traffic declined to 29 from 33. Both were the lowest since March 1995. The builders group's index of current sales fell to 47, the lowest since May 1995, from 50. All Regions Lower Confidence fell in all four regions this month, with the biggest decrease occurring in the Northeast, which plunged to 40 from 47. The Midwest declined to 25 from 29, the South fell to 49 from 51 and the West declined one point to 61. The overall decline ``is not inconsistent with the reasonably orderly cooling-down process we're projecting for home sales and single-family housing starts in 2006,'' David Seiders, chief economist at the National Association of Home Builders, said in the statement. Morgan Stanley on June 15 downgraded the U.S. homebuilding industry to ``cautious'' from ``attractive,'' saying rising interest rates and oversupply will hurt earnings. A Standard and Poor's index of 16 homebuilders stocks has fallen 30 percent this year. The number of homes available for sale is 35 percent higher than it was a year ago, according to a Wachovia Securities report on June 6 by analyst Carl Reichardt. The report said the housing slowdown is ``worse than we thought.'' There were 565,000 new homes for sale at the end of April, a record. Mortgage Rates The average rate on a 30-year-fixed mortgage was 6.63 percent last week, according to Freddie Mac, the No. 2 source of money for U.S. home loans. That compares with an average of 6.60 percent in May and 5.6 percent in June of 2005. The 30-year fixed rate has averaged about 9.5 percent since 1980. The Fed has increased the nation's benchmark lending rate to 5 percent from 1 percent since June 2004 and almost all economists expect it to raise an additional quarter point at its next monetary policy meeting June 29. Federal Reserve Bank of St. Louis President William Poole on June 16 told reporters in Seoul that U.S. inflation is above his comfort zone. He was at least the ninth official from the Fed in the previous two weeks to express concern about inflation, heightening expectations that the Fed may continue raising rates after its June meeting. The National Association of Realtors forecast June 6 that new home sales would fall 13.4 percent this year to 1.11 million from a record 1.28 million in 2005. Housing starts may decline 6.2 percent to 1.94 million in 2006 from 2.07 million last year. Sales Forecasts Sales of existing homes, which make up about 85 percent of all housing sales, are forecast to drop 6.8 percent to 6.6 million this year from a record 7.08 million in 2005, the group said. The Realtors group is forecasting median price gains of 5.3 percent this year for all housing types, compared with 13 percent in the fourth quarter from a year earlier, according to the Office of Federal Housing Enterprise Oversight. The Realtor's group forecasts new home prices to rise 0.8 percent this year. KB Home, the fifth-largest homebuilder, on June 15 became the most recent builder to cut its 2006 earnings forecast. It said profit will grow at the slowest pace in five years as higher mortgage rates put a chill on demand. ``These conditions will likely persist at least through the remainder of 2006,'' Chief Executive Officer Bruce Karatz said in a statement.
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