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National News

August 16, 2013

US homebuilder confidence nears 8-year high

Confidence among U.S. homebuilders is at its highest level in nearly eight years, fueled by optimism that demand for new homes will drive sales growth into next year.

The brighter sales outlook is the latest sign pointing to a sustained pickup in construction in coming months and comes as applications for permits to build single-family houses are at a five-year high.

The National Association of Home Builders/Wells Fargo builder sentiment index released Thursday jumped to 59 this month from 56 in July. It was the fourth consecutive monthly gain.

A reading above 50 indicates more builders view sales conditions as good, rather than poor.

The last time the reading was above 59 was in November 2005, when it was 61. U.S. sales of new homes peaked in July that year.

Measures of current sales conditions and builders' outlook for single-family home sales over the next six months each increased to their highest levels in at least seven years. Builders' gauge of traffic by prospective buyers was unchanged.

The positive builder confidence index appeared to cheer investors. Homebuilder shares traded higher Thursday at midday.

Steady hiring, rising home prices and still-low mortgage rates are encouraging more people to buy homes. New-home sales jumped 8.3 percent in June to a seasonally adjusted annual rate of 497,000, the fastest pace in five years.

That's still below the 700,000 pace consistent with healthy markets, but represents an increase of 38 percent over the previous 12 months, the biggest annual gain since January 1992.

The rise in demand, home prices and a thinning supply of previously occupied homes on the market have helped make builders more optimistic about their sales prospects, which has led them to step up construction.

Applications for permits to build single-family homes rose for the third straight month in June to 624,000, the highest since May 2008. That suggests home construction should rebound in the coming months.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB statistics.

Many of the large, publicly traded homebuilders have been reporting sharp growth in completed sales and new-home orders this year. And sales for privately held U.S. homebuilders are up 18 percent over the past year, according to data provider Sageworks Inc.

Rising mortgage interest rates could spell trouble for builders, however.

Mortgage rates spiked in June after Chairman Ben Bernanke indicated that the Federal Reserve could slow its bond purchases later this year. The bond purchases have kept long-term interest rates low, encouraging more borrowing and spending.

Last month, D.R. Horton Inc., the nation's largest homebuilder, said its pace of sales declined starting in May, when the rates started to creep higher.

Rates have since stabilized after Bernanke and other Fed members stressed that any change in the bond purchases are contingent on the economy's health.

Concerns over rising rates have hammered homebuilder stocks in recent weeks.

In the latest builder survey, based on responses from 280 builders, a gauge of current sales conditions for single-family homes rose three points to 62, the highest level since January 2006.

Builders' outlook for single-family home sales over the next six months increased one point to 68, the highest reading since October 2005.

A measure of traffic by prospective buyers was unchanged at 45.

On a regional basis, confidence grew in the West, Midwest and South, but was unchanged among builders in the Northeast.

 

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