Homebuilder Confidence in U.S. Rises to One-Year High

By Bob Willis
Bloomberg.com
August 17, 2009

Confidence among U.S. homebuilders rose to a one-year high, another sign that the worst of the housing decline that began in 2006 has passed.

The National Association of Home Builders/Wells Fargo confidence index climbed to 18, matching forecasts by economists and reaching the highest level since June 2008, the Washington-based group said today. A reading below 50 means most respondents view conditions as poor.

Lower prices and government tax credits for first-time buyers have stabilized home sales, setting the stage for builders to gradually step up construction from record lows. Job losses, rising foreclosures and tight credit are a reminder that any recovery in housing will be slow to develop, limiting sales at builders such a D.R. Horton Inc. and Pulte Homes Inc.

“Inventory is being cleared and that is starting to benefit the new-home market,” said Julia Coronado, a senior U.S. economist at BNP Paribas in New York. “With a few months’ lag, that will lead to a turnaround in construction activity.”

Stocks dropped around the world as investors speculated the recent rally in riskier assets had outpaced prospects for economic growth. The Standard & Poor’s 500 index fell 2.3 percent to 981.05 at 1:41 p.m. in New York. The S&P builder supercomposite was down 3.3 percent.

Matches Forecast

The index was forecast to increase to 18 this month from 17 in July, according to the median estimate of 37 economists surveyed by Bloomberg News. Projections ranged from 17 to 21.

The gauge reached a record low of 8 in January and averaged 16 in 2008. It was first published in January 1985.

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 assess the outlook for the next six months.

Last month’s gain was led by an increase in sales expectations over the next six months, which reached the highest level since April 2008. The measure of buyer traffic also improved, while a gauge that tracks current sales was little changed.

The increase in expectations “reflects anticipated sales stemming from the tax credit as well as recent signs that an economic recovery has begun,”David Crowe, chief economist of the builders’ group, said in a statement. “There is definitely a sense of hope among builders that the worst of the downturn is over and that a turning point is near at hand.”

Buyer Credit

In a bid to boost the housing market, the Obama administration’s stimulus measures included an $8,000 tax credit for first-time home buyers for purchases completed by Dec. 1.

Confidence increased in three of four regions, led by a jump in the Northeast. The South was the only area where confidence fell.

Builders probably broke ground on more houses in July for a third month, economists surveyed by Bloomberg forecast the Commerce Department will report tomorrow. Starts probably rose to a 598,000 annual pace from 582,000 in June, according to the survey median. Starts are down 74 percent from their January 2006 peak.

Other housing data in recent months have also signaled the market has bottomed. Combined sales of both new and existing homes have risen for four out of five months since January. That helped push the total number of houses on the market in June down to 4.1 million, a million less than the peak in July 2007.

Prices Stabilizing

Home price declines are also slowing. The S&P/Case-Shiller index of home prices in the 20 largest cities fell 17.1 percent in May from a year earlier, the smallest 12-month drop in nine months. The index rose 0.5 percent from the prior month, the first such gain since July 2006.

While the overall economy is showing signs of emerging from the worst recession since the 1930s, any recovery will be slow to develop. Economists surveyed earlier this month forecast unemployment will reach 10 percent by 2010 and gains in consumer spending will be smaller than the average over the last decade as Americans rebuild savings.

Homebuilders are still racking up losses. Forth Worth, Texas-based D.R. Horton and Pulte Homes, based in Bloomfield Hills, Michigan, on Aug. 4 reported quarterly losses and said the outlook for the housing market remains difficult. The companies are the first- and second-largest U.S. homebuilders.

“Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for homebuyers and weak consumer confidence,” Chairman Donald Horton said in a statement.

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