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U.S. Homebuilder Confidence Matches Highest Since November 2005

Confidence among U.S. homebuilders held in July at the highest level since November 2005, indicating the residential real estate market may be picking up speed.

A reading of 60 in the National Association of Home Builders/Wells Fargo sentiment gauge followed a June figure that was revised higher, the Washington-based group reported Thursday. A measure above 50 means more respondents said conditions were good.

Historically low mortgage rates and a job market that’s steadily improving are making home purchases more attractive for some Americans. Builders’ outlook for sales also climbed to the highest since 2005, pointing to a pickup in construction that will help boost the economy.

“The housing market is showing clear signs of improvement,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “We still have a long way to go before we get too excited, but we’re heading in the right direction.”

Another report Thursday showed jobless claims declined last week, heading back toward the lowest levels in more than a decade and signaling firings remain muted. Applications for unemployment benefits dropped by 15,000 to 281,000 in the week ended July 11, the Labor Department said.

Estimates in the Bloomberg survey for the homebuilder index ranged from 57 to 62 after a previously reported 59 in June.

Builder confidence climbed in three of the four U.S. regions, with the Northeast showing the greatest improvement -- a 5 point gain to 52. Sentiment also rose in the West and Midwest.

Sales Outlook

The group’s measure of the six-month sales outlook advanced to 71 in July, the highest since October 2005, from 69. The gauge of current single-family sales rose to 66 from 65. A measure of prospective buyer traffic eased to 43 from 44.

“The fact that builder confidence has returned to levels not seen since 2005 shows that housing continues to improve at a steady pace,” NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Missouri, said in a statement. “As we head into the second half of 2015, we should expect a continued recovery of the housing market.”

Residential real estate has posted fitful progress this year, with a stronger labor market going a long way toward improving affordability. Payroll gains have averaged more than 208,000 in 2015. While that’s slower than the last year’s pace, it’s strong enough to reduce slack and reduce the unemployment rate, according to economists.

Slow Progress

Meanwhile, wage growth has been tentative and could be holding some prospective buyers back. Average hourly earnings climbed just 2 percent in June, matching the trend for the recovery.

Historically low interest rates may help make homes more affordable for some. The average 30-year fixed-rate mortgage was 4.04 percent in the week ended July 9, compared to an average 9.4 percent in the 30 years leading up to the recession, according to data from Freddie Mac in McLean, Virginia.

At the same time, “demand for housing is still being restrained by limited availability of mortgage loans to many potential homebuyers,” Federal Reserve Chair Janet Yellen said Wednesday in testimony to Congress.

The Fed is trying to time its first interest-rate increase since 2006, a consideration that may help convince some homebuyers to take the plunge. More household formation and a gradually strengthening economy are spurring optimism among builders such as Lennar Corp.

“We have believed and continue to believe that the downside in the housing market is very limited and the upside, very significant,” Chief Executive Officer Stuart Miller said on a June 24 earnings call. “While demand has remained constrained, buyers have continued a steady return to household formation and homeownership as the market opens up, driven by consistently low interest rates and now higher wages and lower unemployment.”

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