Homebuilders' outlook improves as sentiment index jumps in April

Homebuilders are feeling a lot more optimistic that the worst housing downturn in decades may be finally starting to turn around..

An index of builders' confidence released Wednesday posted its biggest one-month jump in five years in April as many homebuyers seized on lower prices and incentives and took advantage of lower interest rates and tax credits.

The National Association of Home Builders/Wells Fargo housing market index climbed five points to 14. While still near historically low levels, the latest index reading is the highest since October.

"This is a very encouraging sign that we are at or near the bottom of the current housing depression," said David Crowe, chief economist for the Washington-based trade association.

The report reflects a survey of 360 residential developers nationwide, tracking builders' perceptions of market conditions. Index readings lower than 50 indicate negative sentiment about the market.

The index hit an all-time low of 8 in January as mounting layoffs, strict mortgage requirements and the worsening U.S. economy sapped demand for new homes.

In response, many builders stepped up sales incentives, slashed prices and trumpeted an $8,000 tax credit for homebuyers enacted in February as part of the Obama administration's economic stimulus package. Mortgage rates, meanwhile, have hovered below 5% for weeks, offering an additional inducement for would-be homebuyers.

As a result, homebuilders have reported an uptick in traffic in recent weeks. KB Home, a Los Angeles-based homebuilder, reported last month that new home orders jumped by 26% in its fiscal first quarter.

"Some of the most favorable buying conditions in a lifetime are now in place, and they are drawing more consumers back to the market," said NAHB Chairman Joe Robson, a homebuilder from Tulsa

Joshua Shapiro, chief U.S. economist for the consulting firm MFR Inc., said the jump reflects the perception the market is improving, but cautioned some builders may be overly optimistic.

"The weakness that preceded it is so pronounced that I think you get a little bit of an exaggeration to people's responses to surveys like this," Shapiro said.

Regionally, builder confidence rose by eight points in the Northeast to 16 and by six points in the Midwest to 14. It climbed by five points in the South to 17 and by four points to 9 in the West.

Builders' gauge of current sales conditions climbed by five points to 13, while builders' expectation of buyer traffic also rose by five points to 14.

The biggest jump came in builders' outlook for sales over the next six months, which climbed 10 points to 25.

In California, a $10,000 tax credit for new home purchases also helped lift sales, according to a separate national survey homebuilders conducted by John Burns Real Estate Consulting

The firm's latest survey shows new home sales, buyer traffic and expectation of future sales all rose since March.

"We think the improvement is attributable primarily to improved affordability," said John Burns, the firm's chief executive. "The new home tax credit in California is also helping."

The improved industry outlook gave battered housing stocks a lift. Shares of Beazer Homes and Lennar got the biggest boost, climbing more than 13% in afternoon trading Wednesday.

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