Sold Signs on Builder Lots as U.S. Confidence Rises

Buyers swarmed builder lots in May to propel the biggest gain in sales of new homes in 22 years, while consumer confidence this month was the strongest since 2008, showing how an improving U.S. job market is giving the economy a much-needed lift.

Home sales jumped 18.6 percent, the largest one-month surge since January 1992, to a 504,000 annualized pace, according to figures from the Commerce Department today in Washington. Another report showed household sentiment climbed in June to the highest point since the early days of the recession that began more than six years ago.

Payroll gains that have exceeded 200,000 workers for four consecutive months and stable borrowing costs at historically low levels are giving Americans the assurance to step back into the real-estate market. The need for builders such as Hovnanian Enterprises Inc. to keep up with the growing demand will lead to gains in construction that will boost the economic expansion.

“Confidence is percolating up through the economy, making people reach for big purchases like new homes,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who had forecast gains in consumer confidence and new home sales. “The risks to the outlook seem to be diminishing.”

Stocks fell a second day, after equity benchmarks rose to record levels last week, as reports of escalating violence in the Middle East overshadowed the economic data. The Standard & Poor’s 500 Index dropped 0.6 percent to 1,949.98 at the close in New York.

German Confidence

Elsewhere today, sentiment was flagging. German business confidence fell in June to the weakest level this year amid signs of slower growth in Europe’s largest economy.

The number of new homes sold in the U.S. last month was the most since May 2008, and exceeded all 74 forecasts in a Bloomberg survey of economists. The median estimate called for a gain to a 439,000 annualized rate. Projections ranged from 415,000 to 462,000. The reading for the prior month was revised to 425,000 from a previously reported 433,000.

Today’s report followed data yesterday that showed sales of existing homes climbed to the highest level since October as purchases jumped in May by the most in three years.

New-home sales, which account for about 7 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than purchases of previously owned dwellings. The latter are calculated when a contract closes, typically a month or two later.

Broad-Based Gain

Demand for new houses climbed in all four regions, led by a 54.5 percent jump in sales in the Northeast.

“Housing is beginning to revive,” said Stephanie Karol, an economist at IHS Global Insight, and the top forecaster of new home sales in the past two years, according to data compiled by Bloomberg. “It’s a step in the right direction. The job market is helping, and there was an expansion of supply the past couple of months.”

Hovnanian Enterprises, New Jersey’s largest homebuilder, is optimistic that demand will continue to rise though sales have been uneven in recent months.

Household formation will be the primary driver of long-term housing demand, Chief Executive Officer Ara Hovnanian said during an earnings conference call on June 4, and “the creation of well-paying jobs will go a long way” toward it. “Given the low levels of total U.S. housing starts, we remain convinced that we are still in the early stages of the housing industry recovery,” Hovnanian said.

Housing Starts

Residential construction is picking up this quarter after a weather-induced slump at the start of the year. Builders broke ground on homes at a 1 million annualized pace in May following 1.07 million in April, the best two-month reading since late 2013, a Commerce Department report showed this month.

A revival in homebuilding will help the economy rebound after a difficult first three months of the year. A Commerce Department report tomorrow is projected to show gross domestic product shrank at a 1.8 percent annualized rate in the first quarter, the worst performance since the depths of the recession in early 2009, according to the median forecast of economists surveyed by Bloomberg.

Another report today showed home prices in 20 U.S. cities rose at a slower pace than forecast in the year ended in April, which will preserve affordability and sustain the recovery.

The S&P/Case-Shiller index of property values increased 10.8 percent from April 2013, the smallest 12-month gain in more than a year, after rising 12.4 percent in March.

Home Prices

Increasing property prices hurt affordability for prospective buyers trying to get into the market. At the same time, they also help homeowners feel wealthier and may keep boosting profits for developers.

Rising real-estate wealth and a better job market are contributing to improving household sentiment. The Conference Board said its consumer confidence gauge rose to 85.2, the highest since January 2008, according to the New York-based research group.

“More and more consumers seem to recognize that there’s some improvement under way in the labor markets,” said Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected an 84.4 reading for sentiment. “The job market has been slow to improve and now that things are finally picking up, we’re beginning to see that in the consumer confidence numbers.”

The share of Americans who said jobs were currently plentiful rose to the highest since May 2008, and more also expected increased employment opportunities in the coming six months.

Payrolls climbed by 217,000 workers in May, the fourth consecutive month employment increased by more than 200,000, figures from the Labor Department showed this month. It was the first time that’s happened since early 2000. The jobless rate held at an almost six-year low of 6.3 percent.

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