Homebuilder Confidence in U.S. Climbs on Improving Outlook

By Lorraine Woellert on May 15, 2013

Confidence (USHMIDX) among U.S. homebuilders improved in May for the first time in five months as buyers rush to take advantage of near record-low mortgage rates.


The National Association of Home Builders/Wells Fargo index of builder confidence rose to 44 from a revised 41 in April, the Washington-based group reported today. The median forecast in a Bloomberg survey called for an increase to 43. Readings below 50 mean more respondents said conditions were poor.


“Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies,” said Rick Judson, chairman of the trade group and a builder from Charlotte, North Carolina. “This is definitely an encouraging sign.”


Low mortgage rates, a strengthening job market and limited inventories are benefiting builders including PulteGroup Inc. and Lennar Corp. as the housing market contributes to growth this year after emerging as a bright spot in 2012. Gains in housing will help the world’s largest economy move through a global slowdown that is hurting manufacturing.


Another report today showed industrial production declined in April by the most in eight months, reflecting broad-based cutbacks manufacturing that show factories will provide little support for the economy.


Stocks trimmed earlier losses after the builder confidence report. The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,649.52 at 10:02 a.m. in New York. It closed at a record 1,650.34 yesterday.


Industrial Production

Output at factories, mines and utilities fell a more-than-forecast 0.5 percent after a revised 0.3 percent gain in the prior month that was weaker than previously reported, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey called for a 0.2 percent decline. Manufacturing, which makes up 75 percent of total production, unexpectedly fell 0.4 percent, the third drop in four months.


All three components of the homebuilder survey showed improvement. The group’s gauge of the sales outlook for the next six months rose a point to 53, the highest reading since February 2007, from a revised 52.


Prospective buyer traffic also improved, to 33 in May from 30 in April. An index of current single-family home sales posted a four-point gain to 48 in May.


Survey Results

Estimates of the 51 economists in the Bloomberg survey ranged from 40 to 45. The index, first published in January 1985, averaged 54 in the five years leading to the recession that began in December 2007. It reached a record low of 8 in January 2009.


The confidence survey asks builders to characterize sales as good, fair or poor and to gauge prospective buyers’ traffic. It also asks participants to assess the six-month outlook.

Builder confidence improved in three of the four U.S. regions. Companies in the Northeast had a 10-point jump, from 31 to 41 in May. Confidence improved in the Midwest from 40 to 45 and in the South, rising from 40 to 44. Sentiment fell in the West, from 52 to 41.


Builders started work on 780,000 homes last year, a 28 percent increase from 2011 and the most in four years. Nonetheless, construction of new homes remains below the 2.07 million reached in 2005, the peak of the housing boom.


Inexpensive borrowing costs are helping to attract would-be homebuyers. The average rate on a 30-year, fixed-rate purchase loan was 3.42 percent for the week ending May 9, down from 3.83 percent a year ago, according to McLean, Virginia-based Freddie Mac. The 30-year rate reached a record low of 3.31 percent in November.


To contact the reporter on this story: Lorraine Woellert in Washington lwoellert@bloomberg.net.


To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net.

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