Are Home Builders Floating on Cloud Nine?

House For Sale

While the real estate market is still well below its glory days of the housing bubble, confidence among home builders in the United States continues to reach new multiyear highs.

After declining for three consecutive months earlier this year, the National Association of Home Builders/Wells Fargo’s index of builder confidence posted its fourth straight monthly gain in August, rising 3 points to reach 59. Confidence is now at its highest level in almost eight years, bringing back memories of the boom.

The reading was better than expected: A Bloomberg survey of economists called for the gauge to come in at 57. Any reading over 50 indicates that more builders view sales conditions as good rather than poor.

“Builder confidence continues to strengthen along with rising demand for a limited supply of new and existing homes in most local markets,” NAHB chief economist David Crowe wrote. “However, this positive momentum is being slowed by the ongoing headwinds of tight credit and low supplies of finished lots and labor.”

The NAHB/Wells Fargo Housing Market Index gauges builder perceptions in three areas of the real estate market. The reading for current sales conditions increased 3 points to 62, while sales expectations for the next six months edged 1 point higher to 68. The component gauging buyer traffic was unchanged from the previous month at 45 — its best level since late 2005.

The three-month moving averages for regional housing market index scores increased across most of the nation. The Midwest and West both climbed 6 points higher to 60 and 57, respectively. The South gained 4 points to reach 54, and the Northeast was flat at 39.

Shares of home builders across the board increased on the news but are still in the red for the year. PulteGroup (NYSE:PHM) and Lennar (NYSE:LEN) shares are both down about 16 percent year to date, while shares of D.R. Horton (NYSE:DHI) have declined 6 percent.

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