Bloomberg News

Homebuilders Rise Most in Two Years as Sentiment Index Gains

October 18, 2011

(Updates with closing share price in second paragraph and homebuilding forecast in 11th.)

Oct. 18 (Bloomberg) -- U.S. homebuilders rose the most in two years after an index of developer sentiment unexpectedly increased to its highest level since May 2010, spurring optimism that demand for new houses may be improving.

The Standard & Poor’s Supercomposite Homebuilding Index climbed 9.6 percent at the close of New York trading, the biggest increase since March 2009. Meritage Homes Corp. and Toll Brothers Inc., the largest U.S. luxury-home builder, rose the most among the gauge’s 12 members, each gaining 13 percent.

The National Association of Home Builders/Wells Fargo sentiment index climbed to 18 in October from 14 the previous month, data from the Washington-based group showed today. Economists surveyed by Bloomberg News projected the measure would rise to 15, the median forecast of 47 economists. Readings below 50 mean more respondents said conditions were poor.

Homebuilder shares “started to rally off of the better sentiment number, then continued to rally from there,” Megan McGrath, an analyst with MKM Partners LP in Stamford, Connecticut, said in an e-mail. “It’s also possible investors are setting up for earnings season and other homebuilder data to come later this week, which now people think may not be as bad as feared.”

Competing With Foreclosures

Builders have struggled as the unemployment rate stands at 9.1 percent, discouraging buyers from making purchases, and new houses compete with foreclosed properties that tend to sell at a discount. A total of 610,337 homes received notices of default, auction or repossession in the third quarter, up from 608,235 in the previous three months, according to RealtyTrac Inc.

The homebuilder sentiment index has “shown several head fakes” by rising without gaining momentum, said Adam Rudiger, an analyst with Wells Fargo & Co. in San Francisco.

“One month of improvement is not enough to convince us that demand has meaningfully improved,” he wrote in a note to investors today. “But we believe this month’s improvement is noteworthy and increases the importance of November’s release.”

The Commerce Department reports September housing starts tomorrow. They are expected to rise to an annual pace of 590,000 from 571,000 in August, according to the median estimate of 74 economists surveyed by Bloomberg.

‘Weigh Heavily’

“We have seen demand for home purchases slowly return to the marketplace, driven by low home prices and all-time low interest rates,” Miami-based builder Lennar Corp. said in an Oct. 11 regulatory filing. “However, demand has been limited by tight and tightening credit standards, high unemployment and low overall consumer confidence, which continue to weigh heavily on the purchase of new homes.”

New U.S. homes sold at an annual pace of 295,000 in August, the slowest since February, the Commerce Department reported Sept. 26.

Home starts rose last month from a year earlier in such markets such as Atlanta, Las Vegas, Los Angeles and South Florida, said Brad Hunter, chief economist for Metrostudy, which tracks construction in about 80 metropolitan areas. Starts of single-family homes probably will rise 5 percent to 442,000 next year, according to the Houston-based company.

“In most markets, we’re seeing increases,” Hunter said in a telephone interview from his office in Palm Beach Gardens, Florida. “Barring a second recession, I think we’re past the bottom.”

The S&P homebuilder measure is down 20 percent this year, compared with a 3 percent decline for the S&P 500 index.

--Editors: Daniel Taub, Kara Wetzel

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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