Home-builder confidence rises in May

MarketWatchMay 16, 2013 

WASHINGTON -- After declining for three months, a gauge of confidence among residential builders rose in May, thanks to rosier views on sales, according to a report released Wednesday.

The National Association of Home Builders/Wells Fargo housing-market index rose to 44 in May from 41 in April, in line with the MarketWatch-compiled economist forecast. April's reading was lowered from 42.

"Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies," said Rick Judson, a builder and the NAHB's chairman.

The sentiment level among builders is up 57 percent from a year ago. The NAHB's gauge of builders' views on present sales of single-family homes rose to 48 in

May from 44 in April, while a barometer of their views on prospective-buyer traffic increased to 33 from 30, and their views on single-family sales in six months ticked up to 53 -- the highest result since 2007 -- from 52.

The builder-sentiment data were more optimistic than a separate Wednesday report on New York manufacturing, which signaled that some factories are struggling.

Despite May's builder-confidence gain, the overall sentiment gauge remains below a key reading of 50, signaling that builders, generally, are somewhat pessimistic about sales trends. The last time the index reached above 50 was in 2006. The index hit a bubble peak of 72 in 2005 and a trough of 8 in 2009.

Builder sentiment has grown along with the rebound in the housing market, which is benefiting from high affordability and an economy that is adding jobs. With greater demand, builders have been able to raise prices for their homes.

Home building is an important economic driver, and economists expect residential investment to continue to contribute to growth this year. On Thursday, the U.S. Department of Commerce will report on new construction of homes, and economists expect a seasonally adjusted annual rate of 965,000 in April, up almost one-third from the same period in last year. Starts unexpectedly surged in March, hitting the highest rate in almost five years, though construction rates are lower than those typically associated with current confidence levels.

There are substantial regional confidence differences among builders. The West saw the highest three-month moving average for builder confidence in May, as its gauge reached 49, up from 31 a year earlier.

In the Midwest the regional barometer hit 45 in May, up from 26 a year earlier, while the South's gauge rose to 42 from 26 and the Northeast's increased to 37 from 27.

Individual housing-bust experiences and employment environments are behind the wide differences among local markets.

For example, among the top 10 markets for the volume of new home sales in the past year, four were in Texas, thanks to affordability and employment trends, according to a recently released report. Meanwhile, four of the top 10 growth markets for new-home sales were in California, where the supply of distressed homes for sale has been dropping.

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