Homebuilder Confidence Reaches Decade High on U.S. Sales Outlook

A worker uses a tape measure while assembling a floor at a modular home production facility in Vallejo, Calif. on Sept. 11.

A worker uses a tape measure while assembling a floor at a modular home production facility in Vallejo, Calif. on Sept. 11.

hotographer: David Paul Morris/Bloomberg
  • Optimism about future sales jumps to highest since August 2005
  • Builders in western U.S. saw biggest surge in confidence

Confidence among U.S. homebuilders climbed in October to a 10-year high, a sign demand for housing may remain solid in the months to come.

The National Association of Home Builders/Wells Fargo sentiment gauge increased to 64 this month, the highest since October 2005, from 61 in September, the Washington-based group reported Monday. Readings above 50 mean more respondents said conditions were good.

A labor market that’s added 1.8 million people to payrolls this year and mortgage rates at historic lows are combining to make home-buying a possibility for many Americans. Higher confidence levels among builders may lead to more construction, which would help alleviate a shortage of available homes and properties that’s pushing up prices.

“We’re still expecting the trend to continue to improve,” Sarah House, an economist at Wells Fargo Securities LLC, said before the report. “Not only are more people working, but I think people are more secure in their jobs.”

Regional Confidence

The homebuilder index’s reading for September was revised down from a previously reported 62. The median forecast in a Bloomberg survey of 46 economists called for the gauge to hold at that level. Estimates in the survey for ranged from 59 to 64.

Confidence climbed in three of the four U.S. regions, with builders in the West showing the greatest improvement as sentiment climbed to a decade high of 76 from 65. Confidence in the Midwest cooled to 59 from 61.

The homebuilders’ gauge of current single-family sales rose to 70 in October from 67 the month before, while the measure of the six-month sales outlook increased to 75, the highest level since August 2005, from 68. A gauge of prospective buyer traffic was unchanged at 47.

“This upward momentum shows that our industry is strengthening at a gradual but consistent pace,” David Crowe, chief economist at NAHB, said in a statement. “With firm job creation, economic growth and the release of pent-up demand, we expect housing to keep moving forward as we start to close out 2015.”

Labor Market

An improving labor market has helped give more Americans the means to buy a home. Still, smaller payroll gains may raise concern that cooling global growth is starting to affect the U.S. economy, the world’s largest. Employers added 142,000 workers to payrolls in September after a gain of 136,000 in August, the weakest back-to-back increases since the two months ended January 2014.

Meanwhile wage pressure remains subdued, which may make it harder for consumers to set aside money for a down payment. Hourly pay climbed 2.2 percent last month from a year earlier, close to the 2 percent average since the recession ended in June 2009.

Borrowing costs that remain cheap may help keep housing affordable. The average 30-year, fixed-rate mortgage was 3.82 percent in the week ended Oct. 15, compared to an average of 6.15 percent in the previous expansion.

Federal Reserve policy makers are weighing housing and labor markets as they consider whether to raise interest rates this year. The central bankers’ next meeting is Oct. 27-28.

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