Homebuilder Confidence in U.S. Increases to Five-Year High

Confidence among U.S. homebuilders climbed in August to the highest level in more than five years, affirming the improvement in residential construction.
The National Association of Home Builders/Wells Fargo builder confidence index rose to 37, higher than projected and the best showing since February 2007, according to figures from the Washington-based group released today. The median forecast in a Bloomberg survey of economists called for no change from July’s 35. Readings below 50 mean more respondents said conditions were poor.

Builders such as PulteGroup Inc. (PHM) are benefiting as less-expensive properties and record-low mortgage rates entice buyers. At the same time, faster hiring and fewer foreclosures are needed to bring about bigger gains for the industry that precipitated the worst recession in the post-World War II era.
“The outlook appears to be brightening,” Barry Rutenberg, chairman of the NAHB and a builder from Gainesville, Florida, said in a statement. At the same time, “there is still much room for improvement.”
Other reports today showed production at factories, mines and utilities climbed more than forecast in July, and consumer prices were unexpectedly little changed.

Stocks Climb
Shares rose as the figures showed the world’s largest economy was sustaining the recovery that began in June 2009. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,406.14 at 10:08 a.m. in New York. The S&P Supercomposite Homebuilding Index advanced 0.8 percent.
Estimates for the builder sentiment index of 46 economists in the Bloomberg survey ranged from 31 to 38. The gauge, which was first published in January 1985, averaged 54 in the five years leading to the recession that started in December 2007. It reached a record low of 8 in January 2009.

The builders group’s index of present single-family home sales climbed to 39 this month from 36 in July and a measure of sales expectations for the next six months rose to 44 from 43. Both gauges reached the highest level since 2007. The index of buyer traffic increased to 31, the highest since May 2006, from the prior month’s 28.
The 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.

Regional Breakdown
Confidence improved among builders in two of the four U.S. regions, led by the Midwest, where it rose to 42, the highest level since October 2005, from 33 the prior month. The South reported an increase to 35 from 33. The sentiment index fell to 25 from 34 in the North, and declined to 40 from 43 in the West.

The report “provides further evidence of the gradual strengthening that’s occurring in many housing markets,” David Crowe, the association’s chief economist, said in a statement.
PulteGroup, the largest U.S. homebuilder by revenue, posted a better-than-estimated profit and a 32 percent jump in orders in the second quarter, the company said July 26.
With cheaper mortgage rates and homes, “we are very optimistic about housing demand,” Richard Dugas, Pulte’s chairman and chief executive officer, said on a July 26 conference call with analysts. “That being said, we are keeping a watchful eye on the macro trends, which ultimately need to turn more positive for the recovery to expand further.”
Home-improvement retailer Home Depot Inc. (HD) is also benefiting. The Atlanta-based company yesterday reported second-quarter profit that topped analysts’ estimates and raised its forecast for profit this year as customers spent more on remodeling projects.

To contact the reporter on this story: Shobhana Chandra in Washingtonschandra1@bloomberg.net.