US homebuilder confidence rose to an eight-month high in May and has doubled since falling to a record low at the beginning of the year as buyers responded to new incentives to break ground.

The National Association of Home Builders’ index of homebuilder sentiment rose from 14 to 16 this month, in line with economists’ expectations. The figure remains 78 per cent below the peak of hopefulness reached in June 2005 when the index rose to 72. A reading of more than 50 indicates “good” conditions.

“Builders are responding to what they perceive to be some of the best home buying conditions of a lifetime,” Joe Robson, NAHB chairman, said on Monday. “You’re not likely to get a better deal in terms of mortgage rates than what’s available right now.”

Sentiment improved the most in the west and north-east, while inching up slightly in the south and staying flat in the mid-west. Sales conditions and expectations of sales for the next six months also improved.

David Crowe, NAHB’s chief economist, noted that greater affordability and a new tax credit for first-time buyers are succeeding in luring people back to the market.

The US government has thrown billions of dollars at the housing crisis, with programmes to modify troubled mortgages and others to help homeowners refinance into new loans even if their homes are worth less than they owe. The Mortgage Bankers Association estimates that lenders could originate as much as $2,780bn of new mortgages this year as homeowners take advantage of lower interest rates.

“We’ve kind of tip-toed to the abyss and said we’re not jumping,” said Brian Bethune, an economist at IHS Global Insight. “The sky is not falling.”

Home prices have seen record drops in the last year and remain nearly 30 per cent below their peak in July 2006. The National Association of Realtors said last week that the median price of an existing home fell by 13.8 per cent to $169,000 in the first quarter of this year from the same period in 2008. Foreclosures and distressed sales made up nearly half of all transactions in the first quarter and continue to rise as job cuts continue to spread.

A return of homebuilder confidence signals that housing starts could start to rebound. New residential building hit a record low in 2008 but spiked in February before slipping back again in March. Economists expect that the number of housing starts in April, to be revealed on Tuesday, ticked up

via FT.com / World – US homebuilder confidence climbs.

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