Housing Outlook: Homebuilder Confidence Stuck in a Rut

homebuilder confidenceHomebuilder confidence remained flat in May, as tight credit and a glut of distressed properties on the market continue to deflate expectations.

The National Association of Home Builders/Wells Fargo Housing Market Index, which gauges builder confidence on three criteria -- current home sales, projected sales in six months and prospective homebuyer foot-traffic -- came in at the low score of 16 in May. The index has remained at 16 for six of the past seven months.

"Builder confidence has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing have continued to cloud the outlook," said NAHB Chairman Bob Nielsen in a press release on Monday.

A score of 50 or higher on the index means that a majority of builders find the market favorable. In the past 12 months, the highest score recorded on the index was in May 2010, when it reached 22. This would prove to be an unsustainable score, though, as confidence in the wake of last year's homebuyer tax credit quickly dissipated after its expiration.

On a regional level, the Northeast recorded a five-point drop from April to 15, the Midwest remained unchanged at 14, the South rose one point to 16, and the West dropped two points to 16.

But there is a slight, though tentative silver lining. The index gauging prospective homebuyer traffic inched up one point to 14. While still very low, this marks the highest traffic score since May 2010.

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