Behind the Numbers: Builder Confidence Climbs

A closely-watched confidence index came in at the highest level in nearly five years, a sign of improvement for an industry trying to climb out of a deep slump.

The National Association of Home Builders said Wednesday its housing market index climbed to 29 from 25 in January. The increase, the fifth in a row, lifted the index to its highest since May 2007. Economists polled by Dow Jones Newswires had forecast a reading of 26.

All three components of the builders’ index increased. Builders’ assessment of traffic from potential buyers, current sales conditions and expectations for sales over the next six months all reached the highest point since mid-2007.

To be sure, the reading remains low. A number above 50 in the NAHB index would show more builders view conditions as good rather than poor. And keep in mind that the reading remains well below the boom, when numbers hit the high 60s and 70s. Of course, it is much better than the depressing eight seen in early 2009.

Builders have been through a lot in recent years and they know headwinds remain. Bargain-priced foreclosures continue competing for new-home sales. Buyers, even ones with solid credit scores, are also having trouble securing mortgage funds from jittery lenders. Meanwhile, while unemployment is no longer sky-high, plenty of Americans remain out of work or under employed.

Still, today’s reading put some pep in builder stocks: No major public builder shows a loss. Shares of Beazer Homes USA and Hovnanian Enterprises Inc. are up nearly 5%. KB Home and Standard Pacific have gained more than 3%.

Is this report a head fake or a true sign of recovery? Here’s what industry watchers had to say:

Cooper Howes, economist, Barclays: “While the absolute levels of the headline index are still low compared with the history of the series, we see this report as consistent with our view that housing will not hinder economic recovery in the same manner that it did at the end of the last recession.”

Joshua Shapiro, chief U.S. economist, MFR: “The next few months will be critical in determining to what degree homebuilders follow their more optimistic talk with action. While some improvement in starts seems likely (particularly in January on the back of unusually mild weather in much of the nation), we continue to believe that the massive supply overhang of existing homes will present brutal competition to the new home market for the foreseeable future, and therefore it is unlikely that single family housing starts will make sharp gains from current rates anytime soon.”

–Jeff Bater and Alan Zibel contributed

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