Homebuilders Confidence Highest Since July, Survey Shows

Homebuilders are continuing to gain confidence that sales will improve in the coming months, an index showed.

The National Association of Home Builders' index of builder confidence for sales of new, single-family homes rose two points in January to 35 from a upwardly revised 33 in December. The index now stands at its highest level since last July.

The index is another sign that the housing market maybe gaining some strength after months of weakness.

The index, which remains far below year-ago levels, is based on a survey of homebuilders, who answered questions about sales prospects now and in the near-term. When the index is over 50, it means the number of builders who see "good" sales outnumber the number who see "poor" sales.

Fed Shouldn't Prick Asset Bubbles

The survey results come as Federal Reserve Governor Frederic Mishkin said central banks should not try to prick house price bubbles, but should prepare to step in quickly if an asset price bubble bursts.

"I am of the camp of those who argue that monetary policymakers should restrict their efforts to achieving their dual mandate of stabilizing inflation and employment and should not alter policy to have preemptive effects on asset prices," he said in remarks prepared for delivery to the Forecasters Club of New York.

The Fed distributed a text of remarks to reporters in Washington.

Mishkin, a professor of banking and finance at Columbia University before he joined the Fed last September, was talking hypothetically about assets bubbles. He said there has been an extraordinary run-up in U.S. home prices over the past decade.

Lower Mortgage Rates, Price Aiding Sentiment

According to the NAHB Chief Economist David Seiders, trends that were evident at the end of last year are continuing in the current housing market. These factors include improving affordability measures, strengthening consumer assessments of home buying conditions and an upswing in applications for mortgages to buy homes.

“Builders are starting to see that the worst is behind them and that buying conditions have improved to the point that greater optimism is warranted,” Seiders said.

He added that the recent stabilization of home buyer demand largely reflects reductions in mortgage interest rates since mid-year, lower energy prices following what had been record highs, and solid growth in employment and household income. Reductions in home prices and widespread sales incentives offered by builders also have helped resuscitate buyer demand.

Two out of three component indexes registered improvement in January. The index gauging current single-family home sales and the index gauging traffic of prospective buyers each gained three points, to 36 and 26 respectively, while the index gauging sales expectations for the next six months remained unchanged at 49, the NAHB said.