Builders, investors offer a bleak outlook on the housing market
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It's shaping up to be a cruel summer for the U.S. homebuilding industry, which only a few years ago seemed to be powering the American economy. The troubles are mainly of the economic variety, but homebuilders have also become part of the biggest domestic political fight of this election season-the debate over illegal immigration.
On the economic front, hardly a week goes by without more bad news emerging. Last week, the National Association of Home Builders (NAHB) said that industry confidence was at a 16-year low. The group's index for rating its members' views of market conditions fell to 28, the lowest reading since February 1991. A rating below 50 shows a low level of confidence; last year at this time the index stood at 42.
Behind the gloom and doom is continued fallout from the reckless lending and borrowing of the past several years (see "Arms have legs," Nov. 26, 2005). RealtyTrac Inc. reported on June 12 that there were 90 percent more foreclosure filings in May than during the same month in 2006. Interest rates on 30-year fixed mortgages, meanwhile, shot up to 6.74 percent.
"The environment is still very tough for builders," economist Joshua Shapiro told the Bloomberg news service. "There is still a lot of inventory out there and higher mortgage rates certainly don't help."
All of this occurred as NAHB lobbyists turned up the heat on Congress to oppose parts of the Bush-Kennedy immigration overhaul. Homebuilders were specifically worried about provisions that would penalize them for hiring illegal aliens or using subcontractors that hire illegals. They also argued that disruptions in the flow of immigrant workers "would do irreparable harm" to their industry.
Add it all up, and investors had reason to be bearish about builders. Despite strong gains this year for the stock market, stock prices for major homebuilders have dropped as much as 25 percent.
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