Home builder confidence grows

 

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Dec. 18, 2012, 11:53 a.m. EST

Home-builder confidence highest since 2006

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By Ruth Mantell, MarketWatch

WASHINGTON (MarketWatch) — A gauge of confidence among home builders rose in December to the highest level since April 2006, with respondents encouraged by declining inventory and good sales conditions, a trade group said Tuesday.

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Construction workers build a new home in Miami.

The National Association of Home Builders/Wells Fargo Housing Market Index rose two points to a seasonally adjusted level of 47 — matching estimates from analysts polled by MarketWatch — from a downwardly revised 45 in November. A prior estimate for November pegged the level at 46. See economic calendar.
Despite eight months of gains, the confidence gauge remains below the key reading of 50. Readings over 50 indicate that more builders see sales conditions as good than poor.
“One thing that is still holding back potential home sales is the difficulty that many families are encountering in getting qualified for a mortgage due to today’s overly stringent lending standards,” said Barry Rutenberg, NAHB’s chairman and a Gainesville, Fla., home builder.

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Indeed, the housing sector still faces substantial challenges from tight credit conditions and persistently high unemployment. However, Tuesday’s report is the latest indicating that the sector has bottomed out and is strengthening.
“This report fits nicely with our view that the turn in housing is real but getting too bullish on the sector would be a mistake,” said Steven Ricchiuto, chief economist with New York-based Mizuho Securities USA.
Along with increasing sentiment among builders, there have also been recent gains in prices, sales and new construction, though levels remain relatively low. Meanwhile, mortgage rates hover near record lows, with the 30-year fixed-rate mortgage averaging 3.32% in the week ending Dec. 13, according to Freddie Mac.

Builder sentiment details

Among the three component indexes of the home-builder sentiment report, two are above 50.
The gauge that measures current sales expectations rose two points to 51 in December, reaching above 50 for the first time since 2006. The component measuring sales expectations in the next six months declined one point to 51. Meanwhile, a gauge of prospective-buyer traffic rose one point to 36.
While confidence readings have more than doubled over the past 12 months, new construction of single-family homes is below levels historically associated with current levels of sentiment among builders.
An exchange-traded fund of home builders, the iShares Dow Jones U.S. home construction index fund (NAR:ITB) , advanced Tuesday morning. This exchange-traded fund has almost doubled over the past 12 months.
Looking forward, David Crowe, NAHB’s chief economist, said he expects continuing growth.
“While there is still much room for improvement, the consistent upward trend in builder confidence over the past year is indicative of the gradual recovery that has been taking place in housing markets nationwide and that we expect to continue in 2013,” Crowe said.