Home Builders' Confidence Is Highest Since 2005

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WASHINGTON-Home builders' confidence levels increased in August to the highest point in nearly eight years, the latest sign the sector could continue to drive the economic recovery.

The National Association of Home Builders, an industry trade group, said Thursday that its housing-market index increased three points to 59 in August, though the July figure was revised down by one point.

This level is the highest since November 2005, marking a rapid climb in recent years. Two years ago the index stood at 15. Readings above 50 indicate that more builders view conditions as good than poor.

"Builders are seeing more motivated buyers walk through their doors than they have in quite some time," said association Chairman Rick Judson, who is a home builder in Charlotte, N.C.

He added that strengthening home prices and reduced supply are causing "an increased sense of urgency among those who are in the market."

The builders' group, however, did fret that tight credit and shortages of land and labor could slow momentum.

The improving figures come amid signs that mortgage rates, which jumped by a percentage point during the spring, are leveling off. The average interest rate on a 30-year, fixed-rate mortgage was 4.40% last week according to Freddie Mac, virtually unchanged from a week earlier.

Some in the real-estate industry fear that if rates did move up significantly, home sales will slow and be a drag on the broader economy, a worry because home building has been an important driver of otherwise lackluster growth so far this year.

Spending on residential building contributed 0.38 percentage point to a 1.7% annualized growth rate of gross domestic product in the second quarter, the Commerce Department said last month.

Regionally, the index improved across the country with the exception of the Northeast, where it held flat. The Northeast is the only area where builders still categorize conditions as poor.

The August survey is based on responses from 280 builders.

Story provided by:  online.wsj.com