The Housing Market Receives Another Bubble-Like Boost

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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 index of builder confidence posted its third straight monthly gain in July. The index jumped six points to reach 57 in June. Confidence is now at its highest level since January 2006, bringing back memories of the recent housing bubble.

The reading was better than expected and topped all but one estimate in a Bloomberg survey of 49 economists. Any reading over 50 indicates that more builders view sales conditions as good rather than poor.

“Today’s report is particularly encouraging in that it shows improvement in builder confidence across every region as well as solid gains in current sales conditions, traffic of prospective buyers, and sales expectations for the next six months,” noted NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. However, he warned, “This positive momentum could be disrupted by threats on the policy side, particularly with regard to the mortgage interest deduction and federal support for the housing finance system.”

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 five points to 60, while sales expectations for the next six months surged seven points to 67. The component gauging buyer traffic increased five points to hit 45 in July — its best level since late 2005.

“Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” noted NAHB chief economist David Crowe. “Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”

The three-month moving averages for regional housing market index scores increased across the nation. The Northeast and Midwest both climbed higher to 40 and 54, respectively. The South gained five points to reach a reading of 50, and the West posted a gain of three points to hit 51.

In morning trading, home builders like Toll Brothers (NYSE:TOL) and KB Home (NYSE:KBH) surged 3.4 percent and 4.4 percent, respectively. Shares of Lennar (NYSE:LEN) gained 2.5 percent. Home improvement names likeLowe’s (NYSE:L) edged slightly higher, while Home Depot (NYSE:HD) traded flat.

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