Homebuilder optimism rises

Friday, Aug. 20, 2004 | 11:08 a.m.

BLOOMBERG NEWS

An index of U.S. homebuilder optimism rose this month to its highest point in almost a year as lower mortgage rates underpinned demand, a private survey showed.

The National Association of Home Builders said its measure of builder confidence in demand for single-family houses was 71, the highest since October and up from 67 in July. A reading greater than 50 means that builders view market conditions as more positive than negative. The index has exceeded 60 for 15 months in a row.

"Potential buyers who might have been sitting it out started diving back into the market when rates headed downward," said NAHB President Bobby Rayburn, a home builder from Jackson, Miss. "With the ongoing favorable financing climate and solid house-price performance, We have good reason to expect continued strength in the housing market in the months ahead."

The Federal Reserve has raised the nation's benchmark interest rate by 25 basis points twice in the past seven weeks, and mortgage rates have fallen afterward each time. The fixed 30-year mortgage rate fell to 5.85 percent the week ending August 13, an 18-week low. Thirty-year rates averaged 5.83 percent in 2003.

The homebuilder optimism index had been forecast at 67, the same as reported a month earlier, based on the median of 12 economists' estimates. Projections ranged from 65 to 69. The NAHB index was based on 202 responses in a survey of builders.

A gauge of buyer traffic in the builders' survey rose to 57, the highest since May 1999, from 51 in July. The index's measure of current sales rose to 76 this month from 74, and a gauge of sales expectations for the next six months rose to 78 from 74.

NAHB is forecasting housing starts of 1.9 million in 2004, the most since 1978, and record single-family starts of 1.56 million.

The Mortgage Bankers Association expects home sales to reach a historic high in 2004, surpassing last year's volume of 7.2 million units by 3.5 percent, before slowing in 2005 and beyond. Home sales are expected to drop by nearly 11 percent in 2005.

The National Association of Realtors, the U.S. industry's largest trade group, increased its estimate for home sales last week for the eighth time this year, saying low mortgage rates and an improving economy will spur the housing market to records for both existing home sales and new home sales.

Fifty-nine percent of the 802 investors surveyed by The Gallup Organization in July said that real estate was a more attractive investment now than six months ago.

NAHB Economist Michael Carliner said the industry has benefited from excess orders in 2003, which are only now being filled, and from higher sale prices.

"For most products, when the prices goes up you expect demand to drop off, but that's not the case with housing," Carliner said. "It works the other way around for the housing industry because people view housing as a more favorable investment."