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

Confidence among U.S. homebuilders jumped more than forecast in May, reaching a five-year high that signals an improving outlook for construction.

The National Association of Home Builders/Wells Fargo index of builder confidence rose to 29, the highest since May 2007, a report from the Washington-based group showed today. The gauge exceeded the highest projection in a Bloomberg News survey in which the median estimate was 26. Readings below 50 mean more respondents said conditions were poor.

“We have resumed the gradual upward trend in confidence that started at the beginning of this year,” Barry Rutenberg, chairman of the National Association of Home Builders and a builder from Gainesville, Florida, said in a statement. This comes “as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”

Companies such as building products maker Ply Gem Holdings Inc. (PGEM) are benefiting as cheaper homes and mortgage rates at a record low combine to boost demand. While foreclosures remain a hurdle for the industry three years after the end of the last recession, Federal Reserve Governor Elizabeth Duke said today that there are indications the “tepid” real estate market is on the mend.

Today’s report showed gains in measures of current single-family home sales, the outlook for the next six months and buyer traffic.

Range of Estimates

Estimates of 47 economists in the Bloomberg survey ranged from 23 to 27. The group revised April’s reading to 24, from a previously estimated 25. 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.

Builder shares gained after the figures, with the Standard & Poor’s 500 Supercomposite Homebuilding Index climbing 3 percent at 10:51 a.m. in New York. The broader S&P 500 gained 0.2 percent.

Among other data today, retail sales rose in April at the slowest pace of the year, showing mild weather and pre-Easter shopping may have drawn consumers to stores in the previous month. The 0.1 percent gain in purchases followed a 0.7 percent increase, the Commerce Department said.

The builders group’s index of current single-family home sales climbed to 30 this month, from a revised 25 in April. A measure of sales expectations for the next six months rose to 34 from a revised 31, and the gauge of buyer traffic increased to 23, the highest since April 2007, from 18.

‘Beginning to Recover’

“Housing demand is slowly beginning to recover,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in an e-mailed note. “Banks are showing increasing willingness to lend to consumers, which should bode positively for the mortgage market. In turn, this would help shift the housing recovery into a higher gear.”

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.

In a speech today in Washington, Duke said that still-elevated foreclosures are “indicative of a historic level of homeowner stress, they are down from their post-crisis peaks, and there are signs that further gradual improvement may lie ahead.”

There are “some promising signs in the trend of house prices as well” and “somewhat encouraging” indicators of housing construction activity, Duke said.

“Notwithstanding these signs of improvement in the housing market, demand for owner-occupied housing remains stubbornly tepid,” she said.

By Region

Confidence improved among builders in three of the four U.S. regions, led by the Northeast, where it rose to 32 from 26 today’s data showed. The Midwest showed an increase to 27 from 22, and the South had a gain to 28 from 23. Confidence dropped in the West to 29 from 31 in April.

Ply Gem, a maker of exterior building products such as vinyl siding, fencing and stone veneer, reported a 20 percent increase in sales in the first quarter, in which it also had an operating profit compared with a loss a year earlier.

“Although our first-quarter sales and earnings improved over the prior year, overall conditions in the housing market continue to be challenged,” Gary Robinette, chief executive officer of the Cary, North Carolina-based company, said on a May 11 conference call with analysts. There are “foreclosures that still need to be absorbed through the system.”

Higher Unemployment

“The fragile U.S. economy and consumer confidence; high levels of unemployment,” and tight lending standards are among other factors weighing on the outlook, he said.

Work on apartment projects also is getting a lift as the foreclosure crisis turns more Americans into renters.

Housing starts rose to a 685,000 annual pace in April, from a five-month low of 654,000 in March, according to the Bloomberg survey median ahead of a Commerce Department report due tomorrow. Permits, a proxy for future construction, probably fell last month, economists predicted.

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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