Confidence among U.S. homebuilders rose in August to the highest level since 2005 as demand for new homes supports the market amid rising mortgage rates.

The National Association of Home Builders/Wells Fargo index of builder confidence climbed to 59 from a revised 56 in July, which was lower than previously reported, the Washington-based group reported today. The median forecast in a Bloomberg survey of economists called for the gauge to be 57. Readings above 50 mean more builders view conditions as good than poor.

Mortgage rates that have climbed since May are failing to curb builder confidence as supply constraints push buyers toward new homes, a sign that recovery in the housing market can be sustained. Further improvement in residential construction should help economic growth pick up through the second half of the year.

“Someone who’s thinking of buying a home, not wanting to get a fixer-upper and not having a wide selection of non- distressed homes, will turn to new homes,” Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York, said before the report. “Even though we expect some moderation in sales, the demand for new homes remains quite buoyant.”

Estimates in a Bloomberg survey of 47 economists for the homebuilder index ranged from 54 to 60. This is the gauge’s third consecutive reading above 50, and is the highest since November 2005, when the measure reached 61.
Jobless Claims

Claims for jobless benefits unexpectedly dropped last week to the lowest level in almost six years, signaling the U.S. job market continues to mend. The number of applications for unemployment insurance payments declined by 15,000 to 320,000 in the week ended Aug. 10, the fewest since October 2007, a Labor Department report showed.

Two of the three components of the homebuilder survey showed improvement. The group’s measure of the sales outlook for the next six months increased to 68 in August from 67 the prior month. The index of current single-family home sales rose to 62 from 59. Prospective buyer traffic was unchanged at 45.

Builder confidence was mixed in the four U.S. regions, with a gauge of sentiment among companies in the Midwest rising to 64 from 62, while sentiment in the South climbed to 56 from 54. Confidence in the Northeast was unchanged at 40 while sentiment in the West declined to 59 from 61.
Continued Strengthening

“Builder confidence continues to strengthen along with rising demand for a limited supply of new and existing homes in most local markets,” David Crowe, chief economist at the builders association, said in a statement.

Historically low borrowing costs for homebuyers have climbed over the last three months. The average rate for a 30- year fixed mortgage climbed to 4.4 percent in the second week of August, up from 3.35 percent at the start of May, McLean, Va. Freddie Mac said in a statement. The rate reached an all-time low of 3.31 percent in November.

Housing has been “strengthening, but mortgage rates have risen somewhat, and fiscal policy is restraining economic growth,” the Federal Open Market Committee said July 31 at the conclusion of a two-day meeting in Washington.

Supply constraints in the housing market, an improved employment picture and the attractiveness of homeownership are still on the side of builders even after the run-up in rates, Allan Merrill, chief executive officer of Beazer Homes USA Inc., said on an Aug. 1 conference call. The Atlanta-based company said new home orders fell to 1,381 in the third quarter, which ended June 30, from 1,555 in the same period in 2012, while home closings rose to 1,234 from 1,109.

“While we may not be in the first inning of the housing recovery, we’re still a long ways from the seventh inning stretch,” Merrill said on the call.

–With assistance from Alexandre Tanzi in Washington. Editors: Kevin Costelloe, Mark Rohner