Does the Housing Recovery Remain Intact for Home Builders?

Despite rising costs, U.S. home builder confidence increased in May as the housing recovery remains intact.

After declining for three consecutive months, the National Association of Home Builders/Wells Fargo index of builder confidence gained 3 points to reach 44, compared to a downwardly revised 41 in April. Economists projected a reading of 43, according to a Reuters survey. A reading below 50 on the index means more respondents said conditions were poor than good. The index has not been above 50 since April 2006.

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“Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates, and strengthening local economies,” noted National Association of Home Builders Chairman Rick Judson, a home builder from Charlotte, N.C. “This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, 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 jumped 4 points to 48, while sales expectations for the next six months edged slightly higher to 53, its highest level since February 2007. The component gauging buyer traffic gained 3 points to hit 33 in May.

“While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders’ views of current sales conditions have improved, and expectations for the future remain quite strong as consumers head back to the market in force,” said NAHB Chief Economist David Crowe.

The three-month moving averages for regional housing market index scores was mostly unchanged across the nation. The Northeast, Midwest, and South regions all held steady at 37, 45, and 42, respectively. However, the West posted a decline of 6 points to hit 49.

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On Wednesday, shares of home builders such as PulteGroup (NYSE:PHM) and Toll Brothers (NYSE:TOL) edged slightly higher. However, shares of Lennar (NYSE:LEN) dropped nearly 1 percent after reaching a fresh 52-week high the prior day.

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