For the first time in seven years, most U.S. homebuilders are optimistic about home sales, a sign that construction could help drive stronger economic growth in coming months.
The National Association of Home Builders/Wells Fargo builder sentiment index released today leaped to 52 this month from 44 in May.
A reading above 50 indicates more builders view sales conditions as good, rather than poor. The index hasn’t been that high since April 2006, just before the housing market collapsed.
Measures of customer traffic, current sales conditions and builders’ outlook for single-family home sales over the next six months also soared to their highest levels in seven years.
The housing recovery is looking more sustainable and should continue to boost economic growth this year, offsetting some of the drag from higher taxes and federal spending cuts.
Steady hiring and low mortgage rates have encouraged more people to buy homes. The increased demand, along with a tight supply of homes for sale, has pushed home prices higher. That’s made builders more optimistic about the market for newly built homes, leading to more construction and jobs.
In April, applications for new home construction reached a five-year peak. And sales of new homes rose to a seasonally adjusted rate of 454,000, nearly matching the fastest pace since July 2008. Sales are still below the 700,000 pace considered healthy by most economists. But they have risen 29 percent in the past year.
In recent weeks, many of the major large homebuilders have reported strong annual growth in sales during the spring home-selling season. The increased demand has paved the way for builders to raise prices and ramp up construction of more homes, despite lingering concerns over rising costs for land, building materials and labor.
“Builders are experiencing some relief in the headwinds that are holding back a more robust recovery,” said David Crowe, the NAHB’s chief economist.
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 NAHB statistics.
The latest builder confidence index was based on responses from 255 builders.
A gauge of current sales conditions for single-family homes jumped eight points to 56, the highest level since March 2006, while a measure of traffic by prospective buyers improved seven points to 40.
Builders’ outlook for single-family home sales over the next six months increased nine points to 61, the highest reading since March 2006.
On a regional basis, confidence grew strongest among builders in the South, while firms in the Northeast and Midwest also posted a gain. An index of confidence among builders in the West declined by one point.