As foreclosure listings grew in many housing markets nationwide in June, the Wells Fargo/National Association of Home Builders HMI or Housing Market Index fell to 15, a difference of one point from last month. The index, whose maximum level is 100 points, reached its highest peak in December 1998 when it reached 78 and had its lowest level in January, when it had only 8 points.
From April to May, the index was in an upward direction, prompting some home builders to express optimistic forecasts. The slight dip doused the optimism.
Joe Snider, an executive of Moody’s Investors service, said the home building industry is crawling along low points as foreclosure listings continue to win the competition in terms of home prices.
The problems of the home building industry were reflected in their stock results on Monday. Standard Pacific shares fell by almost 11 percent to $2.13 and Hovnanian Enterprises shares fell by 6.3 percent to $2.39. KB Home shares dropped by 5.8 percent to $13.27 while Lennar Corp. shares fell by 5.3 percent to $7.56.
Meanwhile, the Dow Jones US Home Construction Index fell by 2.19 percent recently.
Investors in the home building industry had hoped that the sector was on its way to recovery, but the dip in the NAHB housing index is dousing hopes.
The situation is expected to worsen because mortgage rates have been climbing. Data from Freddie Mac showed that 30-year fixed rate home loans had been getting a rate of 5.59 percent last week, which was overwhelmingly higher than the 4.86 percent average rate four weeks earlier.
Also, the $8,000 federal tax credit, which has been enticing first-time home buyers to purchase their homes, is nearing its expiration date. The $10,000 assistance for first-time home buyers in California is also reported to be nearing exhaustion. Home builders are concerned that when these factors are absent, more potential home buyers will defer their home buying decisions.
However, the main factor clobbering sales of new homes is the low pricing of homes in foreclosure listings. Snider explained that foreclosure listings are lowering appraisal values, forcing home builders to sell new homes at a losing price or cancel the sale.
According to a June survey, more than 300 home building executives from over 2000 companies said their new home sales remained at low levels and that home prices continued to decline mainly because of low prices in foreclosure listings.
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