Homebuilder Confidence in U.S. Increases to Five-Year High

Confidence among U.S. homebuilders climbed in June to a five-year high, indicating a brighter outlook for residential construction.

The National Association of Home Builders/Wells Fargo confidence index rose to 29, the highest since May 2007, from a revised 28 in May that was lower than first estimated, a report from the Washington-based group showed today. The gauge exceeded the median estimate of 28 in a Bloomberg News survey. Readings below 50 mean more respondents said conditions were poor.

“This month’s modest uptick in builder confidence comes on the heels of a four-point gain in May and is reflective of the continued, gradual improvement we are seeing,” Barry Rutenberg, chairman of the National Association of Home Builders and a builder from Gainesville, Florida, said in a statement.

Cheaper properties and record-low mortgage rates are propelling demand and encouraging builders to take on new projects. At the same time, further momentum for housing construction may take time to unfold as access to credit is limited and ongoing foreclosures add to supply.

Today’s report showed a gain in the measure of current single-family home purchases. A gauge of sales in the next six months was stable as was the index of buyer traffic.

Estimates of 41 economists in the Bloomberg survey ranged from 26 to 32. The group revised May’s reading from a previously estimated 29. 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.

Bank Lending

“While the June HMI is in keeping with our forecast for gradually improving single-family home sales this year, recent economic reports that have shown some weakening in the pace of recovery likely factored into the marginal gain,” David Crowe, the association’s chief economist, said in a statement. “In addition, builders across the country continue to report that overly tight lending conditions and inaccurate appraisals are major obstacles to completing sales at this time.”

Lower interest rates have helped drive home refinancing and purchases. The Mortgage Bankers Association’s latest refinancing index climbed to a three-year high, while the Washington-based group’s purchase gauge for the week ended June 8 rose to the highest this year.

The builders group’s index of current single-family home sales increased to 32 this month, the highest since April 2007, from 30 in May. A measure of sales expectations for the next six months held at 34, and the gauge of buyer traffic stayed at 23.

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.

By Region

Confidence increased among builders in two of the four U.S. regions, today’s data showed. The measure of sentiment in the Midwest rose to 31 in June from 26, and in the West it climbed to a four-month high of 33 from 29. Confidence eased in the Northeast and South.

“Housing will remain under pressure for a while” even as it’s showing “positive signs,” Carol Tome, chief financial officer of Home Depot Inc., said at a June 6 investor conference.

High affordability is being offset by “very tight” credit, she said. In the first phase of the comeback, which should last a couple of years, the company probably won’t see a “major impact” from housing on its sales growth, Tome said.

Mortgage Rates

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 of 3.67 percent in the first week of June, 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 noted “consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile.”

Housing starts were little changed at a 721,000 annual pace in May after a 717,000 rate a month earlier, according to the Bloomberg survey median ahead of a Commerce Department report due tomorrow. Permits, a proxy for future construction, probably rose last month, economists predicted.