Homebuilder Confidence Best Since May 2010

Confidence among U.S. homebuilders unexpectedly climbed in November to the highest level since May 2010, a sign the outlook for construction may be stabilizing.

The National Association of Home Builders/Wells Fargo index of builder confidence rose to 20 from a revised 17 in October that was a point lower than first reported, the Washington-based group said today. Economists projected an index of 18, according to the median forecast in a Bloomberg News survey. Readings below 50 mean more respondents said conditions were poor.

Borrowing costs near a record low and efforts by the Federal Reserve to spur demand may be starting to bear fruit. At the same time, the prospect of more foreclosed properties returning to the market and competing with new construction means a sustained rebound in housing may be years away.

“The trends are pretty flat but not getting worse, so builders may be less depressed,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “We expect there will be some marginal improvement at best, helped by lower mortgage rates.”

Estimates in the Bloomberg survey of 43 economists ranged from 15 to 20. The gauge, which was first published in January 1985, reached a record low of 8 in January 2009 and averaged 54 in the five years before the recession began in December 2007.

The builders group’s index of current single-family home sales rose to 20 this month, the highest since May 2010, from last month’s reading of 17.

A measure of sales expectations for the next six months advanced to 25, the highest since March, from a revised 23. The gauge of buyer traffic increased to 15, also the best reading since May 2010, from 14.

Jump in Midwest

Builders in the Midwest led the increase, with the index jumping eight points to 23 this month, the highest since March 2007. The South reported a gain to 21 from 19, while the Northeast climbed to 17 from 14. Confidence in the West dropped to 15 from 21.

“Well-qualified buyers in select areas are being tempted back into the market by today’s extremely favorable mortgage rates and prices,” NAHB Chief Economist David Crowe said in a statement. “We are anticipating further, gradual gains.”

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 housing market has been slow to strengthen more than two years after the recession ended in June 2009. Purchases of new houses rose 5.7 percent in September as discounted prices lured buyers in some parts of the country. Sales of previously owned homes, which make up about 94 percent of the market, fell 3 percent that month.

D.R. Horton

D.R. Horton, the second-largest homebuilder by revenue, reported quarterly earnings that missed analyst estimates. The Fort Worth, Texas-based company has been lowering costs and shifting its focus to move-up buyers as demand remains weak.

“We’re still a bit cautious about the overall environment,” Chief Financial Officer William Wheat said on a conference call with investors on Nov. 11. “It is still a challenging homebuilding environment out there.”

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net.

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