Confidence among U.S. homebuilders improved for a second month in November, a sign residential construction may hold at depressed levels.
The National Association of Home Builders/Wells Fargo confidence index increased to a five-month high of 16 from a revised 15 in October that was weaker than initially reported, data from the Washington-based group showed today. A reading of 17 was the median forecast in a Bloomberg News survey of economists.
Residential construction may take years to recover to pre- recession levels as foreclosures stay elevated and depress prices by adding to inventory. Housing demand is also being restrained by unemployment near 10 percent, even as mortgage rates hover near record lows.
“Unfortunately for builders, there is a massive supply overhang of existing homes which will present brutal competition to the new-home market in the foreseeable future,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said in an e-mail to clients. “While the summer readings overstated the gloom, conditions nonetheless remain very poor.”
Index readings lower than 50 mean more respondents said conditions were poor. Estimates in the Bloomberg survey of 48 economists ranged from 15 to 18. The measure reached a record low of 8 in January of last year 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 held at 16 in November, and the measure of sales expectations for the next six months rose to 25 from 23. The gauge of buyer traffic increased to 12 from 11.
Confidence by Region
The measure of builder confidence rose in two of four U.S. regions, led by a five-point gain in the Midwest and a three-point increase in the West. The gauge of sentiment was unchanged at 18 in the South and fell three points in the Northeast to 13.
“Many builders are reporting that while the quantity of buyer traffic through their model homes has not improved dramatically, the quality of that traffic seems to be getting better -- meaning that more people appear to be serious about buying in the near future,” NAHB Chairman Bob Jones, a homebuilder from Bloomfield Hills, Michigan, said in a statement.
Home seizures in the U.S. fell 9 percent in October from the previous month, the biggest decline in a year, as state attorneys-general began a nationwide probe into lender foreclosure practices, according to RealtyTrac Inc. on Nov. 11. Foreclosure filings, which also include default and auction notices, fell 4 percent from the prior month and were little changed from a year earlier.
Bank of America Corp., the largest U.S. lender, has temporarily halted repossessions nationwide as it reviewed processes, while JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC unit froze home seizures in states where courts oversee foreclosures.
Work began on 598,000 homes at an annual pace in October, down from 610,000 in September, according to the median forecast of economists surveyed before a Commerce Department report tomorrow.
Housing starts plunged to a record-low 477,000 pace in April 2009 after reaching a three-decade high of 2.27 million in January 2006. They rose to a 685,000 level in April this year, thanks to an $8,000 tax credit that expired that month.
Mortgage rates at record lows may help boost demand for housing. The rate for a 30-year fixed rate loan fell to 4.17 percent, a record low, last week as the Federal Reserve began a program to buy up to $600 billion in debt through June to boost growth.
D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, expects 2011 to be “challenging” for the industry as consumer confidence and employment remain weak, Chief Executive Officer Donald Tomnitz said Nov. 12.
The company’s home sales and closing volume probably will fall from this year, Tomnitz said on an earnings conference call. In 2011, the spring selling season, the strongest for builders, may fail to bring the traditional boost in demand, he said.
“I don’t see much on the horizon that would give anybody a great degree of comfort on the financial condition of the country,” Tomnitz said. “I just don’t see a lot of hope for a great spring market.”