4/18/2014

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U.S. homebuilder confidence surges in December

U.S. homebuilder confidence surges in December
Workers build a new home in Pepper Pike, Ohio.
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U.S. homebuilders' confidence bounced back strongly this month, a sign that construction and industry hiring may pick up in coming months.

The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday climbed to 58. That was up from 54 in November and matched an eight-year high reached in August. Readings above 50 indicate that more builders view sales conditions as good than poor.

In addition, builders' view of current sales conditions jumped this month to the highest level in eight years. And their outlook for sales heading into next year's spring home-selling season also improved.

The index has stayed above 50 now for seven straight months after being below that level since May 2006. This month's reading is 11 points higher than a year ago. It reflects a U.S. housing market fueled by steady job growth and still-low mortgage rates.

The latest index suggests that builders remain optimistic that the housing recovery will endure even though mortgage rates have risen in recent months.

"The recent spike in mortgage interest rates has not deterred consumers as rates are still near historically low levels," said David Crowe, the NAHB's chief economist. "We continue to look for a gradual improvement in the housing recovery in the year ahead."

Mortgage rates peaked at 4.6 percent in August and have stabilized since September, when the Federal Reserve surprised markets by taking no action on starting to reduce its bond purchases. Its bond purchases are intended to keep long-term interest rates low, including mortgage rates.

The Fed ends a two-day policy meeting Wednesday, after which it will release a statement and projections for the economy.

Mortgage buyer Freddie Mac said last week that the average rate on the 30-year loan declined to 4.42 percent from 4.46 percent a week earlier. In November last year, the average had dipped as low as 3.31 percent, the lowest on records dating to 1971.

Sales of new homes slowed over the summer after mortgage rates rose sharply and a tight supply of homes for sale boosted prices. The combination made home-buying less affordable.

But Americans ramped up purchases of new homes in October 25.4 percent to a seasonally adjusted annual rate of 444,000, according to the Commerce Department.

All told, sales of newly built homes have risen 21.6 percent for the 12 months ending in October. Still, the pace remains well below the 700,000 consistent with a healthy market.

And there are signs that builders are preparing for less growth. Approved permits to build single-family houses began to flat line in the spring, while spending on home construction spending fell 0.5 percent in October from September.

Still, the latest NAHB survey, which included responses from 346 builders, shows builders' outlook is rising again after dimming during the 16-day partial shutdown in October.

A measure of current sales conditions for single-family homes climbed six points to 64, the highest level since December 2005. Builders' outlook for single-family home sales over the next six months rose two points from November to 62, while a gauge of traffic by prospective buyers increased three points from last month to 44.

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 data from the homebuilders association.
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