US Home Builder Sentiment Rises In January

1-18-12 10:35 AM EST - From Dow Jones Newswire

--Builder confidence rises to highest level since June 2007

--Increase in NAHB gauge is fourth in a row

--Index of builder confidence remains historically low

WASHINGTON -- U.S. home builders' sentiment rose in January to the highest level in 4 1/2 years, the latest in a series of signs that the housing market is finally beginning to recover after a prolonged bust.

The National Association of Home Builders said Wednesday its housing market index rose to 25 from 21 in December, reaching its highest point since June 2007. It was the fourth-straight monthly increase. The results were better than expected, as economists polled by Dow Jones Newswires had forecast a reading of 22.

Some analysts see the results, combined with other recent data, as a sign that the U.S. housing market is gradually emerging from a 5 1/2-year bust that helped thrust the economy into the worst recession in decades.

"This is not another false dawn; it's the real deal," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. With mortgage rates hovering near the lowest recorded levels and the job market improving, "people clearly are more willing to take the plunge into housing," he said.

Still, despite the recent trend of increases, confidence is low from a historical perspective. A reading above 50 in the NAHB index would mean more builders view conditions as good rather than poor. The gauge hasn't been in positive territory since April 2006.

Builders are still concerned that many potential buyers are unable to qualify for a mortgage, foreclosures are continuing to pour onto the market and appraisals of properties are coming in below the construction costs.

"The next few months will be critical in determining to what degree homebuilders follow their more optimistic talk with action in terms of significant gains in single-family" home construction, said Joshua Shapiro, chief U.S. economist at MFR Inc. "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."

All three components of the builders' index increased. Builders' assessment of traffic from potential buyers and current sales conditions both hit their highest level since June 2007. Their expectations for sales over the next six months rose to the highest point since September 2009.

"Builders are seeing greater interest among potential buyers as employment and consumer confidence slowly improve in a growing number of markets," said David Crowe, NAHB's chief economist.

The January index was based on a survey of 466 builders. It rose in all four U.S. regions, with the Northeast posting a nine-point gain to 23 from 14 a month earlier. The West had a five-point increase, and the South and Midwest had two and one-point increases, respectively.

Other recent housing market indicators have also been positive. Last month, the National Association of Realtors said the number of Americans signing contracts to buy existing homes increased in November to the highest level in 19 months. New home sales rose a third straight month during November, but remain well below healthy levels.

-By Alan Zibel and Jeff Bater, Dow Jones Newswires; 202-862-9263; alan.zibel@ dowjones.com