By Derek Kravitz Associated Press
WASHINGTON — U.S. homebuilders are gradually growing more optimistic about the depressed housing market and believe homes sales could pick up sharply when the spring buying season begins.
The National Association of Home Builders/Wells Fargo said Wednesday that its builder sentiment index rose for a fifth straight month in February to 29, up from 25 in January. The index has climbed 15 points since September and is now at its highest level since May 2007.
Builders have generally become more hopeful during that stretch about current sales, sales six months out and foot traffic, the report shows.
Even with the brighter outlook, the industry has a long way to go. Any reading below 50 indicates negative sentiment about the housing market. The index hasn’t reached 50 since April 2006, the peak of the housing boom.
A key reason homebuilders are more optimistic is they are seeing more people express interest in buying a home. And rising interest has occurred alongside other improvements that suggest the troubled housing market could pick up after four weak years.
Sales of previously occupied homes rose in December for a third straight month. Mortgage rates have never been lower. And home construction picked up in the final quarter of last year.
Still, home prices continue to fall, and builders keep slashing their prices to stay competitive. Last year was the worst for new-home sales on records dating back to 1963.
Ian Shepherdson, chief U.S. economist for High Frequency Economics, said the index is now consistent with new-home sales rising to more than 450,000 annually. While that’s below the 700,000 considered healthy, it would be an improvement from the recent trend of just over 300,000.
“The story here is that pent-up demand is being freed by much easier mortgage conditions, low rates and rising employment,” Shepherdson said. “It’s real.”
But some economists have questioned the foundation for the growing optimism. Pierre Ellis, an analyst at Decision Economics, notes that new-home sales are up just 1.7 percent from September through December, the latest government data on sales.
“Recorded sales of new homes have hardly budged since September,” Ellis said. He said the credibility of the builders’ survey is “shrinking month by month.”
New homes make up a small portion of housing sales. But they have an outsize impact on the economy. The builder trade group says each new home built creates an average of three jobs for a year and generates about $90,000 in taxes.
Builders are struggling to compete with foreclosures, which have forced down prices of previously occupied homes. And many people are finding it hard to qualify for loans or meet higher required down payments.
Low appraisals are scuttling some deals after contracts have been signed. As a result, some people who want to buy a new house are holding off because they can’t sell their home.
Those in a position to buy are benefiting from lower prices and mortgage rates. The average rate on the 30-year fixed mortgage is at record lows below 4 percent. Yet those factors have done little to boost home sales.
Builders have pointed to some regional pockets of strength. New Orleans, Pittsburgh and other smaller areas of Texas, in particular, have reported increased buying.