Housing recovery is real

Confidence among U.S. homebuilders rose in August to the highest level in seven months, showing the industry is making more headway after weakness earlier this year.

The National Association of Home Builders/Wells Fargo sentiment measure climbed to 55 from 53 in July, the Washington-based group reported today. Readings above 50 mean more respondents said conditions were good. The median forecast in a Bloomberg survey of economists projected it would hold at 53.

Historically low mortgage rates and increased employment are bringing home purchases within reach of more Americans. Faster wage gains would help provide an additional push for the industry, which is struggling to lure first-time buyers beset by tougher credit conditions.

“As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market,” NAHB Chairman Kevin Kelly, a homebuilder from Wilmington, Delaware, said in a statement. “However, builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor.”

Estimates of 44 economists in the Bloomberg survey for the homebuilder sentiment index ranged from 49 to 55.

The measure of the six-month sales outlook advanced to a one-year high of 65 this month from 63 in July.

An index of current single-family home sales increased to 58, the highest since January, from 56, while the group’s gauge of prospective buyer traffic rose to 42, the strongest reading this year, from 39.
 

Midwest Sentiment
 

Builder confidence increased in two U.S. regions, led by a 13-point jump in the Midwest to 65, the highest since records began in 2004. Sentiment also improved in the Northeast. It declined in the South and West.

“While the housing data remain mixed, the economic and demographic fundamentals remain strong and they will eventually prevail,” Scott Stowell, president and chief executive officer at Standard Pacific Corp., an Irvine, California-based homebuilder, said on an Aug. 1 earnings call. “The housing recovery is slow, uneven, but it is real. We’re still maintaining our cautious to positive outlook.”

More hiring and cheap borrowing costs are helping some Americans take the plunge. The economy added more than 200,000 jobs for a sixth straight month in July, the longest such stretch since 1997, according to Labor Department figures. The improving conditions drew more job seekers into the labor force, pushing up the unemployment rate fell to 6.2% from 6.1%.
 

Mortgage Rates
 

Borrowing costs have declined this year. The average 30- year, fixed-rate mortgage was 4.12% in the week ended Aug. 14, down from 4.53% at the start of January, according to data from Freddie Mac in McLean, Virginia.

An increase in homes for sale and slower price gains are also among positive developments for the industry. There were 2.3 million previously owned homes for sale in June, the most since August 2012, according to the National Association of Realtors. The S&P/Case-Shiller index of property values in 20 cities rose 9.3% in May from the same time last year, the smallest advance since February 2013.

“Price appreciation is beginning to slow,” Margaret Kelly, chief executive officer of Re/Max Holdings Inc., a Denver-based franchiser of real estate brokerages, said on an Aug. 13 earnings call. “So moderate price appreciation and increased affordability are positive signs for both buyers and sellers in this market.” Still, she said, “tight lending standards.”
 

Consumer Confidence
 

“We believe this is a multiyear recovery that needs continued support from steady jobs growth, increased wages, stronger consumer confidence in a gradually recovering economy,” Kelly said.

Today’s homebuilder sentiment report is the first in a series of housing data in the coming days. A report tomorrow is projected to show builders broke ground on 968,000 homes at an annualized rate in July after June’s 893,000 pace, according to the median forecast in a Bloomberg survey before figures from the Commerce Department. Data on July existing-home sales are also due this week.

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