U.S. homebuilders are feeling more confident in their sales prospects headed into next year, a sign that home construction and sales of newly built homes may pick up after stalling this summer.
The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose this month to 55, up two points from a revised reading of 53 in July.
The latest reading is the third monthly increase in a row and the highest since January, when it was 56. Readings above 50 indicate more builders view sales conditions as good, rather than poor.
Builders’ view of current sales conditions for single-family homes, their outlook for sales over the next six months and traffic by prospective buyers each increased since July.
The brighter outlook bodes is a positive sign for the new-home market after a lacklustre summer.
Sales of new homes are running behind last year’s pace. They slid 8.1 per cent in June to a seasonally adjusted annual rate of 406,000.
A mix of rising home prices, higher mortgage rates and meagre wage growth has made it more difficult for would-be homebuyers to purchase a newly built home, particularly first-time buyers.
At the same time, the U.S. economy has been adding jobs at a solid clip, with gains topping 200,000 jobs every month in the six months through July.
And the pickup in home values has spurred homeowners to trade up to a nicer home. These so-called move-up buyers are generally in a better financial position to buy than first-time buyers and have helped drive sales for some of the nation’s biggest homebuilders.
In the latest NAHB index, which was based on responses from 366 builders, builder confidence improved nationally and on a regional basis, with readings for the Midwest, West, Northeast and South all posting gains from last month.
The index gauging current sales conditions for single-family homes rose two points to 58, while builders’ outlook for sales over the next six months also rose two points, climbing to 65. A measure of traffic by prospective buyers increased three points to 42.
Housing, while still a long way from the boom of several years ago, has been recovering over the past two years.
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 data.
The builder confidence survey sent shares in U.S. homebuilders higher in morning trading Monday. TRI Pointe Homes Inc. led the sector. The stock rose 52 cents, or 3.8 per cent, to $14.26.