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Homebuilder Confidence Rises to Highest Level Since 2006

Confidence among U.S. homebuilders climbed in December for the eighth straight month, reaching its highest level in more than six years and adding to signs the real-estate market is aiding the economic expansion.

The National Association of Home Builders/Wells Fargo index of builder confidence increased to 47, the highest since April 2006, from a revised 45, the Washington-based group reported today. The December figure matched the median forecast in a Bloomberg survey of 49 economists.

Low interest rates and rising prices are bringing more buyers into the market at the same time a growing number of households boosts demand. That’s injected optimism at Toll Brothers Inc. (TOL) and Hovnanian Enterprises Inc., which are rebounding from the 2008 financial crisis that flooded the market with foreclosures and brought building to a near halt. Hovnanian is among companies that are raising prices.

“Builders across the country are reporting some of the best sales conditions they’ve seen in more than five years, with more serious buyers coming forward and a shrinking number of vacant and foreclosed properties,” said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Florida. “One thing that is still holding back potential home sales is the difficulty that many families are encountering in getting qualified for a mortgage due to today’s overly stringent lending standards.”

Bloomberg Survey

Estimates in the Bloomberg survey ranged from 44 to 49. The index, first published in January 1985, averaged 54 in the five years leading to the recession that began in December 2007. It reached a record low of 8 in January 2009.

The builders group’s index of present single-family home sales advanced to 51 in December, the highest since April 2006, from 49 in November. A measure of sales expectations for the next six months fell to 51 from a revised 52, which was the highest since February 2007. A gauge of buyer traffic improved to 36 from 35.

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and gauge prospective buyers’ traffic. It also asks participants about the outlook for the next six months. A reading below 50 means more respondents reported poor conditions. The main index hasn’t been above that line since April 2006.

Regional Confidence

Regionally, confidence improved among builders in two of four regions, led by the Midwest, where the gauge rose to 53 from 51.

The survey was taken about a month after superstorm Sandy, which struck the Northeast on Oct. 29.

Hovnanian, based in Red Bank, New Jersey, has raised prices in more than half of its communities in the past year as the supply of homes for sale shrinks, Chief Executive Officer Ara K. Hovnanian said.

“Record low interest rates, attractive home prices, pent- up demand, a lower supply of existing homes for sale, improvement in the economy and employment and greater optimism are all helping drive the housing recovery,” Hovnanian said on a Dec. 13 earnings call. “This is occurring in spite of the restrictive mortgage lending environment and the number of underwater existing home buyers.”

For those who can qualify for a home loan, declining mortgage costs are making it cheaper to buy a house. The average fixed rate on a 30-year, fixed-rate purchase loan was 3.32 percent in the week ended Dec. 13, compared to 3.94 percent a year ago, according to Freddie Mac (FMCC), based in McLean, Virginia.

A Commerce Department report tomorrow might show that housing starts slowed in November after reaching a four-year high the prior month. Builders broke ground on houses at an annual rate of 871,000 last month, down from 894,000 in October, according to the Bloomberg survey median.

To contact the reporter on this story: Lorraine Woellert in Washington lwoellert@bloomberg.net.

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

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