By RYAN TAYLOR

Home builders aren’t feeling very confident. And for good reason.

The National Association of Home Builders shared their sentiment index for November Tuesday and the reading was the lowest since they began keeping track. The index dropped 5 points from 14 in October to 9 this month - a 10 point drop from a year earlier. The index is based on a survey of 422 residential developers nationwide and a reading under 50 is viewed as negative sentiment.

Unlike many other data points provided by various real estate trade associations, the NAHB index has been significantly more accurate in conveying the general direction of the market. With a confidence number of 9, there’s no way to sugar coat what’s going in the marketplace.

Home values continue to trend down and nobody feels the pain more than the homebuilders, whose top line is tied directly to how much they can sell homes for. Their business has come to a grinding halt and we believe there will be no sustainable bottom in the housing market until the industry consolidates. Their sentiment reinforces our view point: There’s just not enough business for tens of nationwide homebuilders, each building effectively the same product.

NAHB Chairman Sandy Dunn told Bloomberg, “We are in a crisis situation, tremendous economic uncertainties have driven consumers from the housing market, and it’s going to take some major incentives to bring them back.” Indeed.

The NAHB also provided an index for expected sales over the next six months, which remained at 19. While this number reflects negative sentiment, it is markedly more positive than the overall sentiment, largely because many homebuilders still believe the government ongoing financial market bailout will successfully unfreeze the credit markets. Again, the NAHB index gives an indication of the overall market sentiment as most market participants are hoping the near future will be brighter than today.

Frankly, the homebuilder sentiment cannot get much lower than it is right now. However, this doen’t mean it will rise any time soon. When it does, a sustained trend based on fundamentals - not bailouts - will be required to indicate a true bottom to the housing market. Given the vast amount of uncertainty still plaguing the market, its unlikely a meaningful improvement will be seen in the next six months.

The bottom in housing is still a ways off.

Tags: developers, homebuilder, Housing, index, NAHB, sentiment

This entry was posted on Tuesday, November 18th, 2008 at 10:05 pm and is filed under Housing Perspective, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.