Why US homebuilders are bullish on the economy

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose two points to 60. Readings above 50 indicate more builders view sales conditions as good rather than poor.

(AP Photo/LM Otero, File)
A "Sold" sign sits in front of the foundation of a house under construction as workers discuss plans in Plano, Texas. On Monday, Aug. 15, 2016, the National Association of Home Builders/Wells Fargo releases its monthly index of builder sentiment.

American homebuilders are feeling more optimistic about the housing market this month, reflecting strong growth in new-home sales and prices.

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose two points to 60 following a downwardly revised reading of 58 in July.

Readings above 50 indicate more builders view sales conditions as good rather than poor. The index has mostly held at 58 this year since rising to 61 in January.

Builders' view of current sales and their outlook for sales over the next six months improved this month, while a gauge of traffic by prospective buyers declined slightly.

The latest builder survey follows a recent surge in the sales of new U.S. homes.

Sales accelerated in June to a seasonally adjusted rate of 592,000, the fastest pace in more than eight years. While the median sales price of a new home climbed to $306,700, an increase of 6.1 percent from June last year. July sales figures are due out next week.

New-home sales have risen 10.1 percent through the first six months of this year versus the same period in 2015, aided by a strong job market and low mortgage rates.

Employers added the most jobs in eight months in June and hiring was also healthy in July, The Christian Science Monitor reported.

The labor market looks strong, the Labor Department, announcing that employers added 255,000 jobs in July while unemployment remained at 4.9 percent.

The news far outstripped economists' predictions of 179,000 job gains. July's job increases came after employers added 292,000 jobs in June, a signal that the economy could be rebounding after a decline in May caught some off guard.

"This was everything you could have asked for, maybe more," Michelle Meyer, the head of United States economics at Bank of America Merrill Lynch, told the New York Times. "We're seeing new entrants into the labor market, which implies a longer runway for the business cycle."

Meanwhile, the average for the benchmark 30-year fixed-rate mortgage was 3.45 percent last week, down sharply from 3.94 percent a year ago, according to mortgage buyer Freddie Mac. The benchmark for the 30-year, fixed-rate mortgage remains close to its all-time low of 3.31 percent set in November 2012.

Those trends should keep housing "on an upward path during the rest of the year," said Robert Dietz, the NAHB's chief economist.

Even so, sales of new homes have yet to rebound to their historic average rate of 650,000.

The rise in prices for newly built and previously occupied homes coupled with tight inventories remain challenges for many would-be homebuyers. Builders also continue to face growing competition for labor and land that's ready for new development.

This month's builder index was based on 341 respondents.

A measure of current sales conditions for single-family homes rose to two points to 65, while builders' view of sales over the next six months increased one point to 66. A gauge of traffic by prospective buyers fell one point to 44.

On a regional basis, the index found builder sentiment improved in the Northeast and South, but declined in the Midwest and West.

Though new homes represent only a fraction of the housing market, they have an outsized 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.

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