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Homebuilder Confidence Climbed in July to Six-Month High

JUL 16, 2014 12:28pm ET
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Confidence among homebuilders rose more than forecast in July, reaching the highest level in six months, as growing payrolls brightened the outlook after a shaky first half.

The National Association of Home Builders/Wells Fargo sentiment measure climbed to 53 from 49 in June, the Washington-based group reported today. Readings above 50 mean more respondents said conditions were good. The median forecast in a Bloomberg survey of economists projected it would rise to 50.

The housing market is showing signs of improvement after higher mortgage rates and harsh winter weather stalled the recovery earlier this year. A strengthening labor market, combined with wage gains and rising consumer sentiment, will probably support further progress in the industry as the Federal Reserve winds down its unprecedented stimulus program.

"There’s not a lot of housing supply, and at the same time, the economy has gotten a little bit better," Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report. "In general, this is a pretty good backdrop for builders."

Estimates in the Bloomberg survey for the homebuilder sentiment index ranged from 48 to 53. June’s reading was unrevised, the report showed.

The measure of the six-month sales outlook rose to its highest level since September, climbing to 64 this month from 58 in June.

An index of current single-family home sales increased to 57, the best reading since January, from 53, while the group's gauge of prospective buyer traffic rose to 39 from 36.

Builder confidence strengthened in all four U.S. regions, with the West rising to 59, the highest in six months, from 53. The Midwest climbed to 53 in July from 47 the month before, while the Northeast rose to 37 from 34. In the South, the measure advanced to 53 from 52.

"An improving job market goes hand-in-hand with a rise in builder confidence," David Crowe, chief economist at the builders association, said in a statement. "As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home."

Payrolls rose by 288,000 in June following a 224,000 gain the prior month that was bigger than previously estimated, Labor Department figures showed earlier this month. The unemployment rate fell to an almost six-year low of 6.1%.

Borrowing costs have also stabilized in recent weeks after climbing in the second half of 2013. The average 30-year, fixed-rate mortgage was 4.15% in the week ended July 10, down from 4.53% at the start of January, according to data from Freddie Mac.

KB Home is among builders seeing gains from the recovery in residential real estate. The Los Angeles-based company reported a profit for its fiscal second quarter as selling prices and orders increased.

While borrowing rules remain strict, "we are seeing signs of loosening among the mortgage companies, and in our served markets, we are beginning to see evidence of the re-emergence of the first-time homebuyer," Chief Executive Officer Jeffrey Mezger said in a June 27 conference call. "While these favorable trends are very encouraging, it is still going to take some time until we reach historical new home activity levels."

Today's homebuilder sentiment report is the first in a string of housing data in the coming days. A report tomorrow is projected to show builders broke ground on 1.02 million homes at an annualized rate in June after May's 1 million pace, according to the median forecast in a Bloomberg survey before figures from the Commerce Department. Data on existing and new-home sales are scheduled for next week.

Central bank policy makers are closely monitoring progress in the housing market as they close in on their 2% goal for inflation and their full employment estimate.

"Significant slack" remains in labor markets, and rates are likely to stay low for a "considerable period" after bond purchases end, which could happen after the Fed's October meeting, Chair Janet Yellen said yesterday in remarks to the Senate.

"There are mixed signals concerning the economy," Yellen said in response to questions. "We need to be careful to make sure that the economy is on a solid footing before raising interest rates."

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