Homebuilder Sentiment Jumps in October

The National Association of Home Builders' index of builder sentiment rises month-over-month as interest among potential buyers begins to pick up.
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(Updated with commentary and stock prices.)

WASHINGTON (

TheStreet

) -- The National Association of Home Builders' index of builder sentiment came in higher month-over-month as interest among potential buyers began to pick up.

The The NAHB said early Monday its confidence index, which measures builder perceptions of current single-family home sales and sales expectations for the next six months, jumped three points to a reading of 16 in October, surprising industry watchers who expected the index to come in flat at 13, according to consensus estimates listed on

Briefing.com

. The index's components include current sales conditions, sales expectations and traffic of prospective buyers -- all of which rose in October.

While it was the index's first improvement in five months, returning the reading to levels last seen in June of 2009, results still pointed to a weak housing environment. Any reading below 50 indicates poor sentiment. The index has not been above 50 since April 2006.

"Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery."

"The new-homes market is finally moving past the lull that occurred when the home buyer tax credits expired and economic growth stalled this summer," noted NAHB Chief Economist David Crowe. "While challenges such as competition from foreclosures, inaccurate appraisal values, and general consumer uncertainty about the economy and job market continue to be major factors, builders have seen a slight increase in consumers who are considering a home purchase. The toughest obstacles really come down to financing - the scarcity of construction credit for builders along with tougher mortgage requirements for consumers."

Builder confidence improved across every region, the report said. The South and West each posted four-point gains, to 18 and 12, respectively, while the Northeast and Midwest each posted single-point gains, to 17 and 13, respectively.

Stocks in the homebuilder sector were mixed Monday morning.

The

SPDR S&P Homebuilders

(XHB) - Get Report

and

iShares Dow Jones US Home Construction

(ITB) - Get Report

, exchange-traded funds that tracks the sector, fell 0.1% and 0.2%, respectively.

NVR

(NVR) - Get Report

gained 1.1% and

PulteGroup

(PHM) - Get Report

2%.

Toll Brothers

(TOL) - Get Report

was flat,

Lennar

(LEN) - Get Report

fell 1.7% and

D.R. Horton

(DHI) - Get Report

edged 0.1% lower.

Hesitancy among potential home buyers had been a key driver of builders' low sentiment in recent months as uncertain consumers did not yet feel secure enough with the jobs market and overall economy to make such large purchasing decisions. That potential buyers are beginning to show increased interest is a welcome sign of future sales potential.

Record-low and near-record-low mortgage rates failed to spark robust demand for housing in recent months, but clearly had an effect on homeowners looking to lower their monthly payments through refinancing.

>>Record-Low Mortgage Rates Spur Refi Activity

Mortgage applications rose for the first time in six weeks in the week ended Oct. 8 as 30-year fixed

mortgage rates

fell to a new record low of 4.21%.

A total of 83.1% of all loan applications in the week were for refinancing existing mortgages, up from 78.9% in the prior week and the highest refinance share since January 2009.

Mortgage loan applications spiked 14.6% on a seasonally adjusted basis, the Mortgage Bankers Association said last week. Refinancing applications soared 21% from the previous week. New-home purchase loan applications decreased by 8.3% from the prior week and were 37.1% lower than in the year-earlier week.

"After five weeks of steadily declining rates to yet another new low, borrowers who had been on the fence jumped off, which factored into refinance activity surging more than 20%," said Michael Fratantoni, MBA's vice president of research and economics. "Refinance application volumes are now close to the highest level this year. Purchase activity remains generally weak, but applications for conventional purchase mortgages are now at their highest level since the beginning of May following the expiration of the

tax credit

."

The U.S. housing market continues to struggle and has been under tremendous pressure for some time. Demand fell further after the

expiration of federal tax credits for homebuyers earlier this year

.

Just as the subprime mortgage troubles expanded into a total housing market downfall, the latest scandal in the home loan industry is expanding into a nationwide political firing line aimed -- once again -- toward the banks due to

problems with foreclosure filings

.

Stifel Nicolaus analyst Chris Mutascio noted Tuesday that while the call for a nationwide foreclosure moratorium is "growing in seemingly every political circle in recent days," it is undecided if the banks should take full blame.

"Is this just political rhetoric from politicians once again blaming the banks for all the ills upon us or are there some merits to it? We are not sure we really know the answer to that question yet, but let's keep one thing in mind during the debate. If there is any way a bank can keep a borrower in his/her home, it behooves the bank to do so from an economic perspective, in our view," the Stifel note said.

"Many homeowners are waiting for the elections next month hoping that more certainty about taxes, bank regulations and other factors will give Americans confidence to move forward with important monetary decisions," Alan Rosenbaum, president of Guardhill Financial, a New York-based mortgage banker and brokerage company, told

Reuters

.

"The lower interest rates on mortgages have spurred refinancing and purchase activity, though not currently as much as hoped for," he said, adding that "the government states that they want to keep rates low so that homeowners will buy and refinance to spur the economy, but they continue to keep underwriting guidelines too strict for most Americans to qualify for a mortgage."

-- Written by Miriam Marcus Reimer in New York.

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