Homebuilder Confidence Increases, Real Estate Stabilizing

Includes: DHI, KBH, LEN, PHM
by: Rubicon Associates

The National Association of Homebuilders released its Housing Market Index data today. As with many recent datapoints in the real estate market, it points to increased confidence that the market has stopped falling and is in the process of stabilizing -- and, in some areas, growing.

From the release:

Builder confidence in the market for newly built, single-family homes gained one point in June from a slightly revised level in the previous month to rest at 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This is the highest level the index has attained since May of 2007.

In June, the HMI component measuring current sales conditions rose two points to 32, which is its highest level since April of 2007. Meanwhile, the components measuring sales expectations in the next six months and traffic of prospective buyers held unchanged at 34 and 23, respectively.

Regionally, the HMI results were mixed in June, with two areas of the country posting gains and two posting declines. The Midwest registered a five-point gain to 31 and the West registered a four-point gain to 33, while the Northeast and South each posted two-point declines, to 29 and 26, respectively.

Click to enlarge images.

As the historical HMI chart shows, while not robust, we should have seen the bottom of the market and are beginning to rebuild and increase.

The Midwest and West showed increases, while the Northeast and the South showed decreases. This makes sense as the Midwest and West were more affected by the downturn.

While there have been many naysayers, investors have voted with their capital. The Standard & Poor's Supercomposite Homebuilding Index has climbed 28% this year, outpacing a 6.8% gain in the broader S&P 500. Continued strength should bode well for the builders: Pulte Group (NYSE:PHM), Lennar (NYSE:LEN), D.R. Horton (NYSE:DHI), and KB Homes (NYSE:KBH).

If this index is a true sign of the times, we should see better data in Housing Starts and Permits tomorrow. Courtesy of Bloomberg, here is the housing calendar:

It's a big week for real estate and housing data, so keep your eye on the ball. If the data comes in stronger, evaluate your opportunities in investing in the homebuilders and other housing-related sectors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article is for informational purposes only, it is not a recommendation to buy or sell any security and is strictly the opinion of Rubicon Associates LLC. Every investor is strongly encouraged to do their own research prior to investing.