Builders exude renewed optimism

The National Association of Home Builders/Wells Fargo index of builder confidence rose to 16 from 14 the prior month, the Washington-based NAHB said yesterday, capping the first back-to-back gain since February 2008. A reading below 50 means most respondents view conditions as poor.

The biggest drop in residential construction on record has helped builders trim the glut of properties on the market while low borrowing costs and falling prices are attracting new buyers. Still, unemployment is at a 25-year high, foreclosures persist, and credit conditions are tight for builders, indicating a housing recovery will be slow.

"Record high affordability, record low mortgage rates, and the government's efforts to jump start economic growth, are giving potential buyers optimism," Jennifer Lee, an economist at BMO Capital Markets in Toronto, said in a note to clients. Still, she said, "the supply of foreclosures that started to hit the marketplace over the last couple of weeks will be tough competition for these new homes."

The Standard & Poor's index of the biggest home builders closed up 7.5 percent at 233.16 in New York trading after Lowe's Cos., the second-biggest US home improvement retailer, said first-quarter earnings fell less than analysts anticipated. Lowe's, helped by sales of more profitable shrubs and flowers, ended up 8.1 percent at $19.94.

The builder confidence index was expected to rise to 16 this month, according to the median estimate of 45 economists surveyed by Bloomberg News. Projections ranged from 13 to 20. The index reached a record low of 8 in January.

The gauge averaged 16 last year.

The confidence survey asks builders to characterize current sales as "good," "fair," or "poor" and to gauge prospective buyers' traffic. It also asks participants to forecast the outlook for the next six months.

The builders group's index of current single-family home sales rose to 14 in May from 12 last month. The gauge of buyer traffic was unchanged at 13. A measure of sales expectations for single-family homes over the next six months rose to 27 from 24.

Confidence rose in three of four regions of the United States, led by a four-point gain in the West to 12 and a three-point gain in the Northeast to 18. Sentiment in the Midwest held at 14.

"Builders are responding to what they perceive to be some of the best home buying conditions of a lifetime," NAHB chairman Joe Robson, a builder from Tulsa, Okla., said in a statement yesterday. He cited borrowing costs, low prices, and the federal government's $8,000 tax credit for first-time buyers.

Federal Reserve chairman Ben S. Bernanke this month told the congressional Joint Economic Committee that housing "is beginning to stabilize," citing that as a reason why the economy will "bottom out," then return to growth "later this year."

Recent reports show Americans are more amenable to purchasing homes as affordability increases.

The Reuters/University of Michigan index of home-buying conditions released May 15 rose to 161 this month from 146 in April. That level is "about equal to the average from 2002 to 2004," Abiel Reinhart, an economist at JPMorgan Chase & Co., said in a note to clients.

The average on a 30-year fixed-rate home loan declined to 4.76 percent in the week ended May 8 from 4.79 percent the prior week, according to the Mortgage Bankers Association.