Builders are most upbeat since 2005 on improving U.S. home sales

WASHINGTON – Builders are more upbeat about the U.S. real-estate market than at any time in the last decade as better job prospects fuel home sales.

The National Association of Home Builders/Wells Fargo sentiment gauge held at 60 in July, matching the previous month as the highest since November 2005, the Washington-based group said Thursday. Another report showed fewer workers filed applications for unemployment benefits last week, signaling employers are resisting cutbacks as the economy improves.

Greater employment opportunities are encouraging Americans, including those paying higher rents, to take advantage of historically low interest rates. Builders’ sales outlook climbed to the highest since 2005, pointing to gains in construction that will help boost the economy.

“Housing continues to improve at a steady pace,” NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Miss., said in a statement. “As we head into the second half of 2015, we should expect a continued recovery.”

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The median forecast in a Bloomberg survey of economists called for the builder sentiment index to hold at the previously reported June level of 59. A measure above 50 means more respondents said conditions were good.

Jobless claims last week headed back toward the lowest levels in more than a decade. Applications for unemployment benefits dropped by 15,000 to 281,000 in the week ended July 11, the Labor Department said.

“Claims are consistent with ongoing labor-market improvement,” said Sean Incremona, a senior economist at 4Cast Inc. in New York, whose forecast for 280,000 filings tied for the closest in the Bloomberg survey. “Claims continue to tell us that not many people are losing their jobs.”

Sales outlook

That helps explain why more Americans are deciding to purchase homes. The builder group’s measure of the six-month sales outlook advanced in July to the highest level since October 2005. The gauge of current single-family sales rose, while a measure of prospective buyer traffic eased.

Builder confidence climbed in three of the four U.S. regions, with the Northeast showing the greatest improvement – a 5 point gain to 52. Sentiment also rose in the West and Midwest.

Residential real estate has progressed in fits and starts this year, with a stronger labor market going a long way toward improving affordability. Payroll gains have averaged more than 208,000 in 2015. While that’s slower than last year’s pace, it’s strong enough to reduce the unemployment rate, according to economists.

Meanwhile, wage growth has been tentative and could be holding some prospective buyers back. Average hourly earnings climbed just 2 percent in June, matching the trend for the recovery.

Mortgage rates

Historically low interest rates may help make homes more affordable for some. The average 30-year fixed-rate mortgage was 4.04 percent in the week ended July 9, compared to an average 6.2 percent during the economic expansion that ended in 2007, according to data from Freddie Mac in McLean, Va.

At the same time, “demand for housing is still being restrained by limited availability of mortgage loans to many potential homebuyers,” Federal Reserve Chair Janet Yellen said Wednesday in testimony to Congress.

The Fed is trying to time its first interest-rate increase since 2006, a consideration that may help convince some homebuyers to take the plunge. More household formation and a gradually strengthening economy are spurring optimism among builders such as Lennar Corp.

Limited downside

“We have believed and continue to believe that the downside in the housing market is very limited and the upside, very significant,” CEO Stuart Miller said on a June 24 earnings call. “While demand has remained constrained, buyers have continued a steady return to household formation and homeownership as the market opens up, driven by consistently low interest rates and now higher wages and lower unemployment.”

While builders remain optimistic, sentiment among consumers has faded after a pickup in June and factory managers in the Philadelphia area were less upbeat this month, other reports showed Thursday.

Bloomberg’s Consumer Comfort Index cooled to 43.2 in the week ended July 12 from 43.5 in the prior week. Last month, the gauge recouped half of its 7.8 point decline from an eight-year high in April.

The Federal Reserve Bank of Philadelphia’s general economic index dropped to a four-month low of 5.7 in July from 15.2. Readings greater than zero signal growth in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware.

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