The National Association of Home Builders/Wells Fargo builder sentiment index rose to 49 in June, highest since January and up from 45 in May. Readings below 50 indicate that builders view sales conditions are poor rather than good. The index has been stuck below 50 since January. The low numbers earlier this year reflected a bitter winter that chilled economic activity across much of the U.S.
But warmer weather hasn't done much to help: Sales of new homes are running about half the rate of a healthy housing market.
Still, builders are the most confident they've been since January about new single-family home sales over the next six months. They report seeing more potential buyers shopping for homes, though traffic remains modest.
"Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase," said David Crowe, chief economist for the homebuilders group. "Builders are reacting accordingly, and are moving cautiously in adding inventory."
New home sales rose 6.4 per cent in April to a seasonally adjusted annual pace of 433,000 from 407,000 in March. But they were down more than 4 per cent from a year earlier. In a healthy market, the annual sales rate for new homes typically runs around 900,000.
Sales surged in the first half of last year but have sputtered since. Last year's gains and a limited supply of homes pushed up prices to levels that strained the household budgets of potential buyers. The median price for an existing home was $201,700 in April, up 5.2 per cent from a year earlier.
"With affordability still hugely impaired compared to last year, don't expect a sustained revival in demand anytime soon," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note. "And if mortgage rates rise over the summer, as we expect, housing will take another turn for the worse."
Existing home sales came in at an annual rate 4.65 million in April, up 1.3 per cent from March but down 6.8 per cent from a year earlier, according to the National Association of Realtors. In a healthy housing market, roughly 5.5 million existing homes are purchased each year.
The increase in home sales over the past year has occurred primarily among homes worth more than $750,000. Buying fell during the same period for homes worth less than $250,000, which make up the majority of all purchases.