Positive signals continue to issue forth for US home builders. The National Association of Homebuilders (NAHB)/Wells Fargo housing market index rose 2 points in August, to 37, the highest index reading since February 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 August gain follows a 6-point increase in July, and led the NAHB’s chairman to note:

This fourth consecutive increase in builder confidence provides further evidence of the gradual strengthening that’s occurring in many housing markets and providing a needed boost to local economies. However, we are still at a very fragile stage of this process and builders continue to express frustration regarding the inventory of distressed properties, inaccurate appraisal values, and the difficulty of accessing credit for both building and buying homes.

It shouldn’t be too long before the NAHB stops complaining about the inventory of distressed properties, which has been falling for several months now. The inventory of new and existing properties for sale dropped by another -19.25% in July, following a drop of -19.35% in June according to data from the National Association of Realtors.

As the inventory continues to fall and home prices stabilize or rise, the outlook for home builders improves, although that’s hard to prove based on today’s share prices for US builders. Rising prices are likely the cause of today’s sell-off in homebuilders’ shares.

KB Home (NYSE: KBH) is down -3.3% at $10.10 in a 52-week range of $5.02-$13.12.

Lennar Corp. (NYSE: LEN) is down -0.5% at $31.13 in a 52-week range of $12.14-$31.90.

The iShares Dow Jones US Home Construction ETF (NYSEMKT: ITB) is down -0.75% at $17.14 in a 52-week range of $8.21-$17.47.

Paul Ausick

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