Confidence among U.S. home builders 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 Wednesday. 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, N.C. “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.
All three components of the home builder 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.
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 home buyers. 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, Va.-based Federal Home Loan Mortgage Corp., or Freddie Mac. The 30-year rate reached a record low of 3.31 percent in November.
In addition, suppliers of building materials sharply reduced their stockpiles and have been slow in adjusting to the resurgent demand for lumber and other goods, the Associated Press reported.
That translates to higher construction costs and heated competition for ready-to build land. Many builders also are paying more for labor, because many of the subcontractor firms that builders rely on are scrambling to find experienced workers, many of which have long since moved on to other types of jobs.
In addition, many smaller builders also are having a difficult time getting loans to buy land.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics kept by the home builders association. Information for this article was contributed by Chris Middleton of Bloomberg News and Alex Veiga of The Associated Press.
Business, Pages 27 on 05/16/2013