The Real Estate Bloggers

Home Builders Stock Downgraded, Confidence Wanes

Posted: 23 Aug 2010 02:35 AM PDT

Newhousing If you are looking to invest, home builders are probably not your safest bet these days. The glut of foreclosures, the hangover from the tax credits, and the threat of continuing high unemployment signals a tough time for the home builders in the coming year.

Standard and Poor’s analyst Ken Leon downgraded four homebuilders this week in response to the economic indicators facing the industry. Ryland Group was downgraded to strong sell from a hold position while KB Homes, Meritage Homes, and D.R. Horton were downgraded to sell status.

And this is not just one analyst’s opinion, it is one shared by the home builders themselves. The monthly survey by the National Association of Home Builders of actual home builders sentiment was near an all time low.

It is an interesting time when the home builders and the analysts actually agree on the state of the construction industry.

Meanwhile, builder confidence continues to fall. Earlier this week, the National Association of Home Builders said its index that measures confidence in the industry posted a reading of 13, the lowest level since March 2009. Any reading above 50 on the index indicates more builders view sales conditions positively than see them negatively.

New home sales this summer-usually the most active season for new home purchases-have been particularly slow, dipping to historic lows in May, and S&P predicts fewer orders and more cancellations from all four of the downgraded stocks before year’s end.

Builders may have to wait until next summer for orders of new homes and sales to pick up, Mr. Leon said: “Between now and May or June of next year, it’s not going to be pretty news.”

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Home Builders Stock Downgraded, Confidence Wanes