After being propped up for the last year or so by the $8,000 new home buyer tax credit, the NAHB’s Builder Confidence level fell in October to 18, rather than an expected 20. This compares with a level of nearly 40 at its peak towards the end of 2007, and 19 in September of this year. A reading of 18 shows that fewer than 1 in 6 builders have a positive view on the housing market.
Several things are pushing against further recovery in housing, chief among which is the expiration of the tax credit. As it stands, buyers need to complete their transaction by December 1 of this year, and it has provided a needed boost to get people to buy homes during a time of falling prices. Legislation to extend the credit is likely to pass in the next month, with broad support coming from Democrats in both the House and Senate, but curiously the White House is remaining mute on the subject. This drop is confidence is probably reflective of the lack of significant progress made by the government in the last month on this issue.
Additionally, builders and homeowners alike are struggling to find financing, as the banks remain fairly choosy about the money they give out. Only the best deals receive the money, and even then the owners are being required to provide significant levels of equity, which is stalling development.
This is bad news for the consumer, as a lot of people equate their personal net worth not by the stock market, but by the value of their home and the money they can borrow against it. As we come up to this holiday season which will be critical for a number of retailers, the market will look for a rebound in consumer confidence to see whether we can bring this recovery off the back of the government and onto the more organic and normal growth patterns. If consumers still feel that their house is losing value and choose to spend cautiously (personally, I feel this would be no bad thing for the fundamentals of this country), this could be a very cheerless Christmas for the market.