Homebuilder confidence in U.S. increases more than forecast

Confidence among U.S. homebuilders rose more than forecast in July to the highest level since January 2006 as companies grew more optimistic about sales prospects.

The National Association of Home Builders/Wells Fargo index of builder sentiment rose by 6 points to 57 during the month, the Washington-based group reported today. The reading surpassed all but one forecast in a Bloomberg survey of 49 economists. Readings above 50 mean more respondents said conditions were good.

Mortgage rates still close to historic lows, a strengthening job market and limited inventories are benefiting builders as the housing market contributes to growth this year. Further gains in residential construction would help the world’s largest economy pick up after a slowdown in the first half of the year.

“Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” David Crowe, the group’s chief economist, said in a statement. “Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”

Estimates in the Bloomberg survey for the homebuilder index ranged from 48 to 60 after a previously reported 52 in June.

The confidence survey asks builders to characterize sales as good, fair or poor and to gauge prospective buyers’ traffic. It also asks participants to assess the six-month outlook.

All of the homebuilder survey’s three components climbed. The group’s gauge of the sales outlook for the next six months rose to 67 in July, the highest since October 2005, from 60 in the prior month.

A gauge of prospective-buyer traffic climbed to 45 this month from 40. The group’s index of current single-family home sales increased to 60 in July from 55.

The NAHB index, first published in January 1985, reached a record low of 8 in January 2009. It averaged 54 in the five years leading to the recession that began in December 2007, and July was the first month since the downturn started that it has surpassed that mark.

By Region

Builder confidence improved in each of the four U.S. regions. A gauge of sentiment in the West climbed 12 points to 62 in July, and confidence in the Midwest advanced to 62 from 55 in June. In the South, the index gained two points to 54, and it reached 41 from 38 in the Northeast.

Inexpensive borrowing costs are helping to attract would-be homebuyers, while a recent pickup in mortgage rates could be spurring buyers to enter the market to avoid even higher costs.

The average rate for a 30-year fixed mortgage climbed to 4.51% in the second week of July, the highest level in about two years, McLean, Virginia-based Freddie Mac said in a statement. The rate reached an all-time low of 3.31% in November.

Builders such as Lennar Corp. have struggled to keep pace with a growing appetite for new homes.

“The overriding driver of recovery in the housing market remains the under-production of both single and multifamily product throughout the economic downturn and up to and including this year,” chief executive officer Stuart A. Miller said in a June 25 conference call. “While production continues to lag the need, we are experiencing supply shortages against a growing demand.”

Housing Starts

Builders started work on 780,600 homes last year, a 28% increase from 2011 and the most in four years. Figures tomorrow may show housing starts increased to a 960,000 annual pace in June from a 914,000 rate a month earlier, economists surveyed by Bloomberg forecast prior to the Commerce Department to report.

New-home sales in May climbed to the highest level since July 2008, while the median selling price increased 10.3% from the same month last year.

“It’s definitely in recovery mode,” Scott Brown, chief economist for Raymond James and Associates Inc., said before today’s report. Higher home prices are “very helpful in terms of the wealth effect on spending. Consumers are going to feel more confident.”


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