Home builders see no improvement in May

Rex Nutting, MarketWatch mailto:rnutting@marketwatch.com. Rex Nutting is Washington bureau chief of MarketWatch.

WASHINGTON (MarketWatch) -- U.S. home builders see no signs of improvement in the housing market after a disappointing start to the spring selling season, the National Association of Home Builders reported Thursday.

After stabilizing at 20 the past three months, the NAHB/Wells Fargo home builders' sentiment index fell back in May to 19, only one point above the record low of 18 set in December. At 19, the index shows about one in five builders has a positive view of the market.

Economists were expecting the index to remain at 20 for a fourth straight month, according to a survey conducted by MarketWatch.

The index peaked at 72 nearly three years ago.

Builders' assessment of current sales have never been gloomier in the 23-year history of the survey, with the sales index falling to 17 in May from the previous record low of 18 in April.

"The housing market has shown no evidence of improvement thus far," said David Seiders, chief economist for the builders industry group.

The sales climate is so bad that the builders say that only a federal subsidy for home buyers will turn the market around.

"The single-family market is still deteriorating and Congress and the administration must move immediately," said Sandy Dunn, president of the trade group and a builder from Point Pleasant, West Va. Both the House and Senate have voted to give a $7,500 tax credit to qualified buyers, but no final legislation has been delivered to President Bush yet.

The temporary tax credit "is essential to halt the housing downswing and remove the heavy drag being exerted by housing on overall economic growth," Seiders said.

The tax credit would prop up prices, which have fallen at a record pace over the past six months.

Builders have slashed their production, but inventories of unsold new homes are still high. Inventories of existing homes are also high, bloated by rising number of foreclosures. Analysts say it will take a year or more to work down inventories to more normal levels.

On Friday, the Commerce Department will report on new construction in April, with economists looking for housing starts to slip to an annual pace of 945,000 units from 947,000 in March. Starts are down 36% in the past year and are down 59% from the peak. Starts of single-family homes are down 44% in the past year.

In the May NAHB survey, builder sentiment fell to the lowest on record in the Northeast and in the Midwest in May. Builders in the West turned slightly more optimistic in May, while sentiment fell in the South.

Builders were more pessimistic in May about current sales, prospective sales and buyers' traffic through subdivisions, the survey said.

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