Optimism Among Homebuilders Grows Ahead of Gulf Construction

Optimism among homebuilders in America unexpectedly increased on prospects that reconstruction of the hurricane-ravaged Gulf Coast region will boost demand.The National Association of Home Builders/Wells Fargo’s index of builder confidence rose to 67 this month from a two-year low of 65 in September, the Washington-based association said on Tuesday. The gain was the first in four months and returns the gauge to its pre-hurricane level.More than 300,000 homes were damaged or destroyed by hurricanes Katrina and Rita. Efforts to repair and replace those homes may help the economy overcome higher mortgage rates and the fallout from the storms, which sent fuel prices to records and shook consumer confidence.“Going into early next year we’re going to see a big boost from Katrina-related construction,” the chief economist at Global Insight in Lexington, Mass., Nariman Behravesh, said.“Katrina was definitely a positive for the homebuilding industry.”Economists expected the homebuilders’ index to fall to 64, the median of 15 forecasts in a Bloomberg News survey. Estimates ranged from 63 to 66. Readings greater than 50 mean builders consider the outlook for sales to be positive.The group’s gauge of buyer traffic rose to 50 this month from 49 in September, and the current sales measure climbed to 73 from 72. Expectations for the next six months increased to 72 from 70.“Builder attitudes are bouncing back from the initial shock of the hurricanes’ devastation and the economic uncertainties immediately following those storms, even in the midst of higher mortgage interest rates,” the president of the builders’ association, Dave Wilson, said in a statement.Still, the six-year housing boom that has helped fuel economic growth is expected to cool in the face of rising mortgage rates and higher prices for building materials in the wake of Hurricanes Rita and Katrina.The average rate on a 30-year fixed rate mortgage rose above 6% last week for the first time since March, and home prices are close to a record.The average 30-year fixed mortgage rate rose to 6.03% last week from 5.77% before Katrina, according to Freddie Mac, the no. 2 buyer of mortgages. That has pushed up the monthly payment on a new home at the median price of $220,300 to $1,325.06, an increase of $36.65.The chief economist at Standard & Poor’s, David Wyss, said last month that home prices in some areas would have to fall at least 35% to come in line with personal incomes.The cost of taking out a home loan is heading higher as the Federal Reserve raises its key interest rate. Policymakers will probably raise the target for overnight loans among banks by a half point to 4.25% by the first quarter of next year, according to a Bloomberg survey of 71 economists.Even so, interest rates are low enough to support demand for new homes, Stuart Miller, chief executive of Lennar, the third-largest American homebuilder by stock market value, said.“Perhaps we’ll take the edge off the strength of the housing market, but I don’t think that we’re going to see a major slowdown any time soon,” Mr. Miller said on September 27.The rate on a 30-year fixed mortgage is still below the average 6.28% of the last five years. The record low was 5.21% in June 2003.The housing market showed signs of cooling before the storms struck. New home sales fell 9.9% to a 1.237 million annual rate in August, the Commerce Department said on September 27.American producer prices rose 1.9% in September, the biggest increase in 15 years, the Labor Department said on Tuesday.Prices paid to plywood producers rose 14.4%, while building paper and board prices surged 13.2%.“Rising material prices are going to raise effective home prices,” the chief economist at Wachovia in Charlotte, N.C., John Silvia, said before the report. “That means less buying of new homes and less remodeling of existing homes.Housing will probably contribute less to economic growth in the year ahead than it has in the past two years.”High energy prices may also be making consumers feel less comfortable with big purchases. Consumer confidence fell to the lowest in 13 years this month, according to a survey released on October 14 by the University of Michigan.Prices of energy surged to records after Katrina struck the Gulf Coast on August 29, knocking out oil rigs and refineries. That storm was followed by Rita on September 24.The housing market has been the main driver of the economy this decade, accounting for 50% of the overall growth and more than half of the private payroll jobs created since 2001, Merrill Lynch said in a report on August 15.

Optimism Among Homebuilders Grows Ahead of Gulf Construction

Optimism Among Homebuilders Grows Ahead of Gulf Construction

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