Home Builders Already Cautious, Get More Cautious (XHB, ITB)

The prior data out of the National Association of Home Builders had been improving for three consecutive months.  New data for October came out today showing that the index slipped.  The problem with already seeing a slip is that the home builder confidence was never really back in the first place.  This response was from some 493 builders around the nation.  We are watching the SPDR S&P Homebuilders (NYSE: XHB) and the iShares Dow Jones US Home Construction (NYSE: ITB) ETFs fall in response.

Confidence from U.S.-based builders fell to 18 from 19 last month ahead of the expiration of the housing tax credit.  We had read estimates from Dow Jones and from Bloomberg of roughly 20 ahead of the report.  To show how dismal this is, it takes a reading of 50 to show builders expecting a good sales environment.

The other concern is that all three components of the index fell in October from September.  The current sales conditions fell to 17 from 18, while prospective buyer traffic fell down to 14 from 17.  With prospective buyers influencing the sales expectations for the next six-month period, it of little surprise that the reading there fell to 27 from 29.

Home sales were up about 30% through, but the fear of this $8,000 tax credit for first-time home buyers is expiring at the end of November.  Homebuilders are worried that the housing purchases will start to peter out if this tax credit is not extended.

The head of the NAHB is calling for an extension of the tax credit for one year. That follows other real estate professionals’ similar calls for an extension to mid-2010 or beyond.

The ETFs are still holding up because the overall market is strong today.  There is also a wild card in that builders might not be confident, but that doesn’t mean that buyers won’t buy at the right price.  The SPDR S&P Homebuilders (NYSE: XHB) is up 0.1% at $15.49 and the iShares Dow Jones US Home Construction (NYSE: ITB) is down 0.5% at $12.50.

Jon C. Ogg
October 19, 2009