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U.S. Homebuilder Confidence Rises to Eight-Month High

 

By Courtney Schlisserman

May 18 (Bloomberg) — Confidence among U.S. homebuilders in May increased to the highest level since September, providing further evidence that the housing slump that started in 2006 may be closer to a floor.

The National Association of Home Builders/Wells Fargo index of builder confidence rose to 16 from 14 the prior month, the Washington-based NAHB said today, capping the first back-to-back gain since February 2008. A reading below 50 means most respondents view conditions as poor.

The biggest drop in residential construction on record has helped builders trim the glut of properties on the market while low borrowing costs and falling prices are attracting new buyers. Still, unemployment is at a 25-year high, foreclosures persist and credit conditions are tight for builders, indicating a housing recovery will be slow.

“Record high affordability, record low mortgage rates, and the government’s efforts to jump start economic growth, are giving potential buyers optimism,” Jennifer Lee, an economist at BMO Capital Markets in Toronto, said in a note to clients. Still, she said, “the supply of foreclosures that started to hit the marketplace over the last couple of weeks will be tough competition for these new homes.”

The Standard & Poor’s index of the biggest homebuilders closed up 7.5 percent at 233.16 in New York trading after Lowe’s Cos., the second-biggest U.S. home improvement retailer, said first-quarter earnings fell less than analysts anticipated. Lowe’s, helped by sales of more profitable shrubs and flowers, ended up 8.1 percent at $19.94.

Matched Forecasts

The builder confidence index was expected to rise to 16 this month, according to the median estimate of 45 economists surveyed by Bloomberg News. Projections ranged from 13 to 20. The index reached a record low of 8 in January.

The gauge, first published in January 1985, averaged 16 last year.

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to forecast the outlook for the next six months.

The builders group’s index of current single-family home sales rose to 14 in May from 12 last month. The gauge of buyer traffic was unchanged at 13. A measure of sales expectations for single-family homes over the next six months rose to 27 from 24.

Confidence rose in three of four regions of the U.S., led by a four-point gain in the West to 12 and a three-point gain in the Northeast to 18. Sentiment in the Midwest held at 14.

Reason to Buy

“Builders are responding to what they perceive to be some of the best home buying conditions of a lifetime,” NAHB Chairman Joe Robson, a builder from Tulsa, Oklahoma, said today in a statement. He cited borrowing costs, low prices and the federal government’s $8,000 tax credit for first-time buyers.

Federal Reserve Chairman Ben S. Bernanke this month told the congressional Joint Economic Committee that housing “is beginning to stabilize,” citing that as a reason why the economy will “bottom out,” then return to growth “later this year.”

Recent reports indicate Americans are more amenable to purchasing homes as affordability increases.

The Reuters/University of Michigan index of home-buying conditions, part of a consumer sentiment report released on May 15, rose to 161 this month from 146 in April. That level is “about equal to the average from 2002 to 2004,” Abiel Reinhart, an economist at JPMorgan Chase & Co., said in a note to clients.

Borrowing Costs

The average on a 30-year fixed-rate home loan declined to 4.76 percent in the week ended May 8 from 4.79 percent the prior week, according to the Mortgage Bankers Association. The rate fell to 4.61 percent in late March, the lowest level since the group began records in 1990.

The Commerce Department may report tomorrow that builders broke ground on more houses in April, adding to signs the recession is abating. Housing starts rose 2 percent last month to an annual rate of 520,000, according to a Bloomberg survey. Building permits rose to a 530,000 pace, the survey said.

Still, some U.S. builders are struggling.

Pulte Homes Inc. and Centex Corp., the companies that plan to combine this year, reported quarterly losses that exceeded analysts’ estimates as the housing recession forced them to record $762 million in land writedowns and property expenses.

Bigger Losses

Pulte, based in Bloomfield Hills, Michigan, reported a first-quarter net loss of $514.8 million, or $2.02 a share. The median estimate in a Bloomberg survey was 55 cents. Centex reported a net loss of $402.8 million, or $3.24 a share, greater than the median estimate of $1.11 a share.

“The operating environment for housing remained very difficult during the first quarter of 2009,” Richard Dugas, Pulte’s chief executive officer, said in a May 5 statement. “Although we are not ready to call a bottom in housing, we are nevertheless encouraged by our sales, traffic and cancellation trends seen in the first quarter that have continued into April.”

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net.

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