Homebuilder sentiment matches highest level since 2005

Confidence among U.S. homebuilders increased more than forecast in December, matching the highest level in eight years. More

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Homebuilder sentiment matches highest level since 2005

Posted 12/17/13

WASHINGTON – Confidence among U.S. homebuilders increased more than forecast in December, matching the highest level in eight years.

The National Association of Home Builders/Wells Fargo builder sentiment gauge rose to 58, exceeding the highest projected in a Bloomberg survey, from 54 in November, according to a report Tuesday from the Washington-based group. The median forecast called for the measure to rise to 55. An index above 50 means more respondents report good market conditions.

The figures show builders are confident the recent slowdown in sales caused by an increase in mortgage rates will prove temporary. A measure of current demand climbed to the highest since December 2005, while gauges of sales prospects and buyer traffic picked up, indicating housing will be a source of strength for the economy next year.

“The recent spike in mortgage rates has not deterred consumers as rates are still near historically low levels,” David Crowe, chief economist at the builders association, said in a statement. “This uptick is due in part to release of pent-up demand caused by the uncertainty generated by the October government shutdown. We continue to look for a gradual improvement in the housing recovery in the year ahead.”

Estimates in a Bloomberg survey of 49 economists ranged from 52 to 57. The index matched August as the highest since November 2005.

The group’s measure of the six-month sales outlook rose to a three-month high of 62 in December from 60 a month earlier. A gauge of prospective buyer traffic advanced to 44, also the best reading since September, from 41.

The index of current single-family home sales jumped by 6 points to 64.

By region

Builder confidence rose in three of four regions, led by the Midwest and South. Optimism eased in the Northeast.

Borrowing costs for homebuyers have climbed since May, with the average 30-year, fixed-rate mortgage at 4.42 percent for the week ended Dec. 12, up from 3.32 percent a year ago, according to Freddie Mac in McLean, Va.

Fed policy makers meet today and tomorrow in Washington are weighing when to begin tapering their record $85 billion in monthly bond purchases. The Fed has said it will keep buying assets “until the outlook for the labor market has improved substantially.”

The improved outlook for jobs has given a lift to housing and mortgage lending is returning to normal more than five years after a credit collapse triggered by sub-prime mortgage lending, said Jamie Dimon, CEO of JPMorgan Chase & Co. in New York.

‘Huge recovery’

“You’ve seen a huge recovery in housing,” Dimon said at a Dec. 11 conference. “Building supply and demand is in balance, in some places in short supply.”

Contracts to purchase new homes have been flat from a year ago, said Ara Hovnanian, chairman and CEO of Hovnanian Enterprises Inc. which designs and builds homes in California, New York and other states. The Red Bank, N.J.-based company has increased incentives to drive demand.

“We feel that we’ve been too aggressive on raising home prices in some of our communities,” Hovnanian said on a Dec. 12 earnings call.

“Over the long term, household formations, the primary driver of housing demand, will return to normalized levels and should ultimately lead to increased demand for new homes,” he said. “We remain convinced that we’re still in the early stages of the housing recovery.”

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