Builder confidence at 5-year high

But pressure on housing persists as credit stays tight

Mario Sanchez works on the frame of a house being built in Palo Alto, Calif., on Monday. Confidence among U.S. builders rose to a five-year high in June, according to the National Association of Home Builders/Wells Fargo confidence index.
Mario Sanchez works on the frame of a house being built in Palo Alto, Calif., on Monday. Confidence among U.S. builders rose to a five-year high in June, according to the National Association of Home Builders/Wells Fargo confidence index.

— Confidence among U.S. home builders climbed in June to a five-year high, indicating a brighter outlook for residential construction.

The National Association of Home Builders/Wells Fargo confidence index rose to 29, the highest since May 2007, from a revised 28 in May that was lower than first estimated, the Washington-based group said Monday.

“This month’s modest uptick in builder confidence comes on the heels of a four point gain in May and is reflective of the continued, gradual improvement we are seeing,” Barry Rutenberg, chairman of the National Association of Home Builders and a builder from Gainesville, Fla., said in a statement.

Cheaper properties and record-low mortgage rates are driving demand and encouraging builders to take on new projects. At the same time, further momentum for housing construction may take time to unfold as access to credit is limited and foreclosures add to supply.

Monday’s report showed a gain in the measure of current single-family home purchases. A gauge of sales in the next six months was stable as was the index of buyer traffic.

Estimates of 41 economists in a Bloomberg survey about the index ranged from 26 to32. The group revised May’s reading from a previously estimated 29. The gauge, which was first published in January 1985, averaged 54 in the five years leading to the recession in December 2007. It reached a record low of 8 in January 2009.

“While the June HMI is in keeping with our forecast for gradually improving single family home sales this year, recent economic reports that have shown some weakening in the pace of recovery likely factored into the marginal gain,” David Crowe, the association’s chief economist, said in a statement. “In addition, builders across the country continue to report that overly tight lending conditions and inaccurate appraisals are major obstacles to completing sales at this time.”

Lower interest rates have helped drive home refinancing and purchases. The Mortgage Bankers Association’s latest refinancing index climbed to a three-year high, while the Washington-based group’s purchase gauge for the week ended June 8 rose to the highest this year.

The builders group’s index of current single-family home sales increased to 32 this month, the highest since April 2007, from 30 in May. A measure of sales expectations for the next six months held at 34, and the gauge of buyer traffic stayed at 23.

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 gauge the outlook for the next six months.

Confidence increased among builders in two of the four U.S. regions, Monday’s data showed. The measure of sentiment in the Midwest rose to 31 in June from 26,and in the West it climbed to a four-month high of 33 from 29. Confidence eased in the Northeast and South.

“Housing will remain under pressure for a while” even as it’s showing “positive signs,” Carol Tome, chief financial officer of Home Depot Inc., said at a June 6 investor conference.

High affordability is being offset by “very tight” credit, she said. In the first phase of the comeback, which should last a couple of years, the company probably won’t see a “major impact” from housing on its sales growth, Tome said.

Jennifer Lee, senior economist for BMO Capital Markets, said the June reading on builder sentiment was welcome news. She said even with recent weak readings on employment, builders’ outlook for sales over the next six months did not decline and foot traffic remained the same.

Still, the pace of home sales remains well below healthy levels. Economists say it could be years before the market is fully healed.

Many people are still having difficulty qualifying for home loans or can’t afford larger down payments required by banks. Some would-be home buyers are holding off because they fear that home prices could keep falling.

Information for this article was contributed by Martin Crutsinger of The Associated Press.

Business, Pages 21 on 06/19/2012

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