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Confidence Among Homebuilders Rises Most in Almost a Year

JUN 16, 2014 11:11am ET
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Confidence among homebuilders rose in June by the most in almost a year, a sign the residential real estate market is stabilizing after reeling from severe winter weather earlier this year.

The National Association of Home Builders/Wells Fargo sentiment gauge climbed to 49 this month from 45 in May, the biggest gain since July 2013, figures from the Washington-based group showed today. Readings greater than 50 mean more respondents report good market conditions. The median forecast in a Bloomberg survey called for 47.

Current sales, the outlook for future purchases and prospective buyer traffic all improved this month, today's figures showed, indicating mortgage rates close to historically low levels and a strengthening job market are sustaining demand. Improving sentiment comes as the world’s largest economy picks up this quarter following a contraction in the first three months of 2014.

The increase "is a welcome sign and shows some renewed confidence in the industry," NAHB Chairman Kevin Kelly, a homebuilder and developer from Wilmington, Del., said in a statement. "However, builders are facing strong headwinds, including the limited availability of labor."

The gain this month in the index was the first this year. Estimates in a Bloomberg survey of 44 economists ranged from 45 to 52.

The group's gauge of prospective buyer traffic rose to 36 from 33 the prior month, while the index of current single-family home sales increased to 54 from 48.

The measure of the six-month sales outlook improved to 59 in June from 56. All three sub-indexes were the highest since January.

Builder confidence improved in the Midwest, West and South. It fell to a three-month low in the Northeast.

Borrowing costs, which climbed in the second half of 2013, have retreated in the past month. The average 30-year, fixed-rate mortgage was 4.2% in the week ended June 12, down from 4.41% at the beginning of April, according to data from Freddie Mac.

Sustained gains in employment will also encourage more home purchases. Payrolls in May exceeded the pre-recession peak for the first time, according to Labor Department data. Employment grew by 217,000 after increasing by 282,000 in April. It marked the fourth consecutive month of gains of more than 200,000, the first time that's happened since early 2000. The jobless rate held at an almost six-year low of 6.3%.

MDC Holdings Inc., a Denver-based homebuilder, is among those seeing a gradual recovery, though executives said measures such as new home sales have yet to return to the average level of the past 10 to 15 years.

"While we've made improvements, we're still well off of what would be considered maybe average or more of a normal basis," John Stephens, chief financial officer, said during a June 5 conference presentation. "We need to see improvements in consumer confidence and job growth, really, which is really going to drive homebuilding at the end of the day."

A report tomorrow is projected to show housing starts cooled to a 1.03 million annualized pace in May from a five-month high of 1.07 million in April, according to the median forecast in a Bloomberg survey before figures from the Commerce Department.

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