Confidence Among U.S. Homebuilders Unexpectedly Fell in May

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Confidence among U.S. homebuilders unexpectedly fell in May, reflecting cooling sales and slower buyer traffic, a sign the residential real-estate market will take time to gain momentum.

The National Association of Home Builders/Wells Fargo sentiment gauge dropped to 54 this month from 56 in April, figures from the Washington-based group showed Monday. Readings greater than 50 mean more respondents report good market conditions. The median forecast in a Bloomberg survey called for an increase to 57.

The drop in confidence helps explain why builders such as D.R. Horton Inc. are trying to offer more lower-priced homes in a bid to attract customers waiting to see if the economy rebounds from a first-quarter slump. At the same time, construction chiefs became more optimistic about the future as still-low mortgage rates and an improving job market underpin the market.

“We had a string of poor economic data that may have weighed on sentiment,” said Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester Pennsylvania, who projected the index would drop. “The fundamental drivers of housing demand support a pickup in the second half. Builders’ collective psyche remains fairly solid.”

Stocks rose to all-time highs as Apple Inc. climbed on comments from Carl Icahn and banks rallied amid higher bond yields. The Standard & Poor’s 500 Index climbed 0.3 percent to 2,129.2 at the close in New York. The S&P Supercomposite Homebuilding Index advanced 1 percent.

Bloomberg Survey

Estimates in a Bloomberg survey of 43 economists ranged from 52 to 59. The prior month’s reading was unrevised at 56.

The group’s gauge of prospective buyer traffic declined to 39 from 40 the prior month, while the index of current single-family home sales decreased to 59 from 61.

The measure of the six-month sales outlook improved to 64, the highest so far this year, from 63.

“Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home,” David Crowe, NAHB chief economist, said in a statement. “On the bright side, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are affordable. These factors should spur the release of pent-up demand moving forward.”

The drop in builder confidence mainly reflected reduced optimism among companies in the Midwest, where the index fell to 51 this month from 55. The gauges for the Northeast and South were unchanged, while the West saw a gain to 56 from 55.

Mortgage Rates

Borrowing costs remain relatively low. The average 30-year, fixed-rate mortgage was 3.85 percent in the week ended May 14, close to the level at the start of 2015 and below last year’s high of 4.53 percent reached in early January 2014, according to data from Freddie Mac in McLean, Virginia.

Gains in employment also are underpinning home purchases. Payrolls climbed by 223,000 in April after a 85,000 gain the prior month, according to Labor Department data. The jobless rate fell to 5.4 percent, the lowest since May 2008.

The latest data available on house sales show a mixed picture. Purchases of previously owned homes jumped in March by the most in four years, while those of new dwellings, a smaller part of the market, fell to the slowest pace in four months.

At the same time, recent reports have raised the risk the economy may not rebound as strongly as projected after barely growing in the first quarter.

Retail Sales

Retail sales were little changed in April after a 0.2 percent drop from January through March that marked the first quarterly decline in almost three years. The University of Michigan preliminary consumer sentiment index in May posted the biggest decline since December 2012.

Gross domestic product may grow at a 2.7 percent annualized rate in the second quarter, down from the 3.1 percent forecast in April, according to the median estimate in a survey of economists conducted by Bloomberg from May 8 to May 13.

Builders have been trying to hold down prices to draw in more first-time buyers.

D.R. Horton, the largest U.S. homebuilder by revenue, in April said its entry-level Express Homes division may make up a greater share of sales, putting pressure on profit margins. The company also said earnings in the second quarter ended March 31 rose as sales increased in a sign of growing demand for new homes.

“The spring selling season at D.R. Horton is off to a strong start,” Chairman Donald R. Horton said in an April 22 statement. “Our increasingly diverse product offerings are enabling us to expand our industry-leading market share.”

A Commerce Department report due on Tuesday may show housing starts increased to a 1.02 million annualized pace in April from 926,000 the prior month, according to the median forecast in a Bloomberg survey. Permits, a sign of future construction, also may have climbed, economists predicted.

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