Homebuilders' Confidence Strongest in More Than 7 Years

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AP
By Richard Leong

NEW YORK -- U.S. homebuilder confidence rose in July to its strongest level in 7½ years as tightening supply and solid demand even in the face of rising mortgage rates fueled the sector's recovery, data from the National Association of Home Builders released Tuesday showed.

The NAHB/Wells Fargo Housing Market index rose to 57, its highest level since January 2006, from a revised 51 in June.

Analysts polled by Reuters had projected the index likely held at its originally reported June level of 52.

Readings above 50 mean more builders view market conditions as favorable than poor. Last month was the first time that the index, which is seen as a proxy on future home construction, has been above that dividing line since April 2006.

"Today's report is particularly encouraging in that it shows improvement in builder confidence across every region as well as solid gains in current sales conditions, traffic of prospective buyers and sales expectations for the next six months," NAHB chairman Rick Judson said in a statement.

The government will release its June report on housing starts Wednesday at 8:30 a.m. Eastern time. Economists forecast home construction likely grew at an annualized pace of 959,000 units last month, faster than May's 914,000 unit rate and which would be its quickest pace since March.
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But Judson cautioned proposed changes to mortgage interest deduction and federal support for the housing finance system might disrupt the housing recovery.

Still the housing sector, along with the labor market, has gained traction in recent months. They have enhanced the chances the Federal Reserve might reduce its bond-purchase stimulus later this year, even though some economists said the overall economy is too fragile for the central bank to make such a move.

The survey's index on homebuilders' view on current sales conditions rose 5 points to 60 points, its highest level since early 2006, the industry group said.

Homebuilders felt even more optimistic for the coming months with the gauge of expectations for single-family home sales for the next six months accelerating to 67 from a revised 60, while the component on prospective buyer traffic increased 5 points to 45. Both sub-indexes strengthened to levels not seen since late 2005.

"Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten," NAHB Chief Economist David Crowe said in a statement. "Meanwhile, as the infrastructure that supplies home building returns, some previously sky-rocketing building material costs have begun to soften."

Homebuilders' Confidence Strongest in More Than 7 Years
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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