Homebuilder Confidence Rises Most in Five Years

Signs of a recovery in the US housing market are everywhere. The National Association of Homebuilders/Wells Fargo housing market index is just the latest signal.

The index rose 6 points in July, to 35, the highest one-month gain in nearly 10 years and the highest index reading since March 2007. An index reading below 50 indicates that more builders view sales conditions as poor than view them as good. Still, the reading is much better than expected.

The association’s chief economist noted:

Combined with the upward movement we’ve seen in other key housing indicators over the past six months, this report adds to the growing acknowledgement that housing – though still in a fragile stage of recovery – is returning to its more traditional role of leading the economy out of recession. This is particularly encouraging at a time when other parts of the economy have begun to show softness, and is all the more reason that the challenges constraining housing’s recovery – namely overly tight lending conditions, poor appraisals and the flow of distressed properties onto the market – need to be resolved.

And in a related development, the National Association of Realtors (NAR) reported this morning that the inventory of homes for sale fell by -19.35% in June when compared with June of 2011. The median national list price of homes for sale rose 2.68% compared with a year ago as well. The NAR noted: “Low inventories, combined with steadily rising list prices are positive signs that the overall market is gaining traction and is entering a recovery mode.” The association is scheduled to release existing home sales for June on Thursday.

Homebuilder stocks are not bouncing on the report though, likely due to an announcement by Lennar Corp. (NYSE: LEN) this morning that the company will issue $300 million in five-year senior notes which the company will use to redeem $267.7 million in senior notes due next year. Lennar’s shares are down about -2.1% at $30.72 in a 52-week range of $12.14-$31.90.

Other homebuilders including PulteGroup Inc. (NYSE: PHM), Toll Brothers Inc. (NYSE: TOL), KB Home (NYSE: KBH), Hovnanian Enterprises Inc. (NYSE: HOV), and Beazer Homes USA Inc. (NYSE: BZH) are also lower this morning.

Paul Ausick