economic indicators

Homebuilder confidence rises most since Sept. 2002

BLOOMBERG FILE PHOTO/DANIELACKER
CONFIDENCE AMONG U.S. homebuilders increased in July by the most in almost a decade, indicating further improvement in residential real estate.
Posted 7/17/12

WASHINGTON - Confidence among U.S. homebuilders increased in July by the most in almost a decade, indicating further improvement in residential real estate.

The National Association of Home Builders/Wells Fargo confidence index climbed 6 points, the biggest gain since September 2002, to 35 this month, a report from the Washington-based group showed Tuesday. The gauge exceeded the most-optimistic projection in a Bloomberg News survey of 46 economists. Readings below 50 mean more respondents said conditions were poor.

Builders said they were more upbeat about sales prospects as both current purchases and buyer traffic improved, showing the industry is being fueled by record-low mortgage rates and cheaper properties. At the same time, limited job growth, stricter credit standards and foreclosures are hurdles for the industry that precipitated the last recession.

“The housing market has turned the corner as more buyers perceive the benefits of purchasing a newly built home while interest rates and prices are so favorable,” Barry Rutenberg, chairman of the National Association of Home Builders and a builder from Gainesville, Fla., said in a statement.

The index reached the highest level since March 2007. The median forecast in the Bloomberg survey called for an increase to 30, and estimates ranged from 28 to 32. The gauge, which was first published in January 1985, averaged 54 in the five years leading to the recession in December 2007. It reached a record low of 8 in January 2009.

Sales, traffic

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to gauge the outlook for the next six months.

The measure of present single-family home purchases climbed to 37 in July, the highest since February 2007, from 31. An index of sales in the next six months increased to 44 this month, the highest since April 2007, and buyer traffic was the strongest since February 2007.

“This is particularly encouraging at a time when other parts of the economy have begun to show softness,” David Crowe, the association’s chief economist, said in a statement.

Confidence increased among builders in all four U.S. regions, today’s data showed. The measure of sentiment climbed to 44 this month in the West from 32 in June. Confidence increased to 36 in the Northeast from 28; to 32 in the South from 27; and to 34 in the Midwest from 31.

Pent-up demand

“It’s been seven years since this all began to turn down, and you have people that are just ready to move on with their lives, take advantage of great interest rates,” Douglas Yearley, chief executive of Toll Brothers Inc., the largest U.S. luxury-home builder, said at a June 14 conference. “We have all this pent-up demand that has not been in the market. That is coming back out.”

Cheaper properties, rising household incomes and low mortgage rates combined to push home affordability to an all-time high in the first quarter, according to the National Association of Realtors. The average rate on a 30-year, fixed-rate mortgage reached a record-low 3.56 percent last week, according to Freddie Mac.

The Federal Reserve’s latest Beige Book assessment of economic conditions indicated residential real estate may be reviving. Several of the central bank’s districts said “consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile.” The Fed’s next Beige Book report will be released Wednesday.

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