Report: mortgage market crisis puts dent in builder confidence.

Concerns about the substantial inventory of new homes for sale and the effects that deepening mortgage market problems are having on buyer demand caused builder confidence to decline for a seventh consecutive month in September, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released this week.

The HMI dropped two points to 20, tying its record low reached in January of 1991 (the series began in January 1985).

"Builders are expressing concern that home buyers are getting spooked by the many headlines they are seeing on mortgage market issues and their continuing effects on the housing market and home prices," said NAHB president Brian Catalde, a home builder from El Segundo, Calif. "Indications are that consumers are trying to time the bottom of the market before making their purchase, which historically can be a very tricky thing to do and is typically not an advisable strategy. The bottom line is, with the inventory situation what it is and the selection of units and deals to be had, now is a very good time to buy a home."

"Certainly problems across the mortgage finance arena are taking their toll on buyer demand, which is weighing heavily on builder confidence measures," said NAHB chief economist David Seiders. "Even so, availability of mortgages under the government-supported part of the market remains very good, and the long-term fundamentals of housing are solid in terms of projected household formations, income growth and other factors. We now expect to see home sales return to an upward path by the second quarter of 2008 and we expect housing starts to begin a gradual recovery process by the third quarter of next year. At that point, the market will have substantial growth potential."

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/ Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

Two out of three component indexes declined in September. The index gauging current single-family home sales declined two points to 20, while the index gauging sales expectations for the next six months fell five points to 26. The index gauging traffic of prospective buyers held steady at 16 for the month.

All four regions of the country reported declines in their September HMI readings. The Northeast posted a three-point decline to 26, while the Midwest posted a single-point decline to 13, the South posted a two-point decline to 22, and the West posted a four-point decline to 18.