Bloomberg News

U.S. Homebuilder Confidence Rises to Highest Level This Year

December 20, 2011

Dec. 19 (Bloomberg) -- Confidence among U.S. homebuilders rose in December for a third consecutive month, a sign of stabilization in the housing market.

The National Association of Home Builders/Wells Fargo index of builder confidence climbed to 21, the highest level since May 2010, from a revised 19 in November that was lower than first reported, the Washington-based group said today. Economists projected an index of 20, according to the median forecast in a Bloomberg News survey. Readings below 50 mean more respondents said conditions were poor.

Borrowing costs near a record low are attracting some prospective home buyers. At the same time, another wave of foreclosures, which would put more existing homes in competition with new ones, means a sustained housing recovery may be years in the making.

“We’re just seeing some incremental improvement,” John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston, said before the report. “It’s too early to say that the worst is over. It’s too early to say that we’re pulling ourselves out of the morass of housing.”

Estimates in the Bloomberg survey of 44 economists ranged from 18 to 23. The gauge, which was first published in January 1985, reached a record low of 8 in January 2009 and averaged 54 in the five years before the 18-month recession began in December 2007.

The builders group’s index of current single-family home sales increased to 22 this month, the most since May 2010, from last month’s reading of 20.

More Traffic

A measure of sales expectations for the next six months advanced to 26, the highest level since March, from 25 in November. The gauge of buyer traffic increased to 18, the highest since May 2008.

Builders in the South led the increase, with the index jumping 4 points to 25 this month. The West reported a gain to 16 from 15, while the Midwest held at 24. Confidence in the Northeast dropped to 15 from 16.

“This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend,” NAHB Chief Economist David Crowe said in a statement. “Builders are reporting more inquiries and more interest among potential buyers than they have seen in previous months.”

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.

‘Pockets of Recovery’

“While builder confidence remains low, the consistent gains registered over the past several months are an indication that pockets of recovery are slowly starting to emerge in scattered housing markets,” Bob Nielsen, chairman of the National Association of Home Builders and a home builder from Reno, Nevada, said today in a statement. “However, the difficulties that both builders and buyers continue to experience in accessing credit for new homes are holding back potential sales even in areas where economic conditions are improving.”

Some companies are seeing signs of improvement on the horizon.

Potential buyers “are aware of the tremendous affordability of homes and the record-low interest rates,” Robert I. Toll, chairman of Toll Brothers Inc., the largest U.S. luxury homebuilder, said on a Dec. 6 conference call with analysts. “However, a lack of confidence in the direction of the economy is perhaps the biggest impediment to releasing what we believe is significant pent-up demand.”

The housing market has been slow to strengthen more than two years after the recession ended in June 2009. Purchases of new houses rose 1.3 percent in October as lower prices attracted buyers. Sales of previously owned homes, which make up about 94 percent of the market, climbed 1.4 percent that month.

--Editors: Carlos Torres, Gail DeGeorge

Company News: TOL US <Equity> CN

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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


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