Homebuilder Confidence at 7-Year High  06/17 13:11

   For the first time in seven years, most U.S. homebuilders are optimistic 
about home sales, a sign that construction could help drive stronger economic 
growth in coming months.

   The National Association of Home Builders/Wells Fargo builder sentiment 
index released Monday leaped to 52 this month from 44 in May. It was the 
largest monthly increase since 2002.

   A reading above 50 indicates more builders view sales conditions as good, 
rather than poor. The index hasn't been that high since April 2006, just before 
the housing market collapsed.

   Measures of customer traffic, current sales conditions and builders' outlook 
for single-family home sales over the next six months also soared to their 
highest levels in seven years.

   The housing recovery is looking more sustainable and should continue to 
boost economic growth this year, offsetting some of the drag from higher taxes 
and federal spending cuts.

   Steady hiring and low mortgage rates have encouraged more people to buy 
homes. The increased demand, along with a tight supply of homes for sale, has 
pushed home prices higher. That's made builders more optimistic about the 
market for newly built homes, leading to more construction and jobs.

   In April, applications for new home construction reached a five-year peak. 
And sales of new homes rose to a seasonally adjusted rate of 454,000, nearly 
matching the fastest pace since July 2008. Sales are still below the 700,000 
pace considered healthy by most economists. But they have risen 29 percent in 
the past year.

   Single-family home construction slowed in April to a seasonally adjusted 
annual rate of 610,000 homes, but that's expected to grow sharply in coming 
months.

   "We are forecasting a considerable acceleration," said Greg Bird, associate 
economist with Moody's Analytics, which projects that housing starts on 
single-family homes will reach an annual rate of 1.6 million by the end of 2014.

   In recent weeks, many of the major large homebuilders have reported strong 
annual growth in sales during the spring home-selling season. The increased 
demand has paved the way for builders to raise prices and ramp up construction 
of more homes, despite lingering concerns over rising costs for land, building 
materials and labor.

   "Builders are experiencing some relief in the headwinds that are holding 
back a more robust recovery," said David Crowe, the NAHB's chief economist.

   Homebuilder Mitchell & Best, which builds homes in Maryland and Virginia, 
expects to deliver between 30 percent and 40 percent more completed homes this 
year than in 2012, said vice-CEO Marty Mitchell.

   "As a small local builder who has been through trials and tribulations the 
last seven years, we're definitely seeing an improvement in the market," 
Mitchell said.

   Still, the company, which sells homes ranging from $700,000 to $1.5 million, 
is struggling to find enough land to build more homes.

   Land in the Washington metro area remains scarce. And the price has risen 
sharply in the past year as demand for new homes has increased.

   Mitchell said he hopes to boost construction next year ahead of this year's 
levels, so long as the company can tie down a few more tracts of land.

   Though new homes represent only a fraction of the housing market, they have 
an outsize impact on the economy. Each home built creates an average of three 
jobs for a year and generates about $90,000 in tax revenue, according to NAHB 
statistics.

   The latest builder confidence index was based on responses from 255 builders.

   A gauge of current sales conditions for single-family homes jumped eight 
points to 56, the highest level since March 2006, while a measure of traffic by 
prospective buyers improved seven points to 40.

   Builders' outlook for single-family home sales over the next six months 
increased nine points to 61, the highest reading since March 2006.

   On a regional basis, confidence grew strongest among builders in the South, 
while firms in the Northeast and Midwest also posted a gain. An index of 
confidence among builders in the West declined by one point.


(KA)