Homebuilders Increasingly Optimistic

Includes: ITB, IYR, KME, REZ, XHB
by: Wall Street Strategies

By David Urani

Today we got the July NAHB/Wells Fargo Housing Market Index, the monthly measure of homebuilder confidence. In a nutshell, the numbers were impressive, with the headline result posting a reading of 57, up significantly from the 51 posted in June. That's also well above the consensus estimate of 52. Not only that, it's also the best reading since January 2006, which in a way is almost alarming given that 2006 was a bubble year. Nevertheless, it's a glowing endorsement of the housing market from the builders themselves.

All regions showed improvements, along with strong gains in traffic, present conditions, and expected sales in the next six months. Inventories reportedly remain tight, while high input costs (notably lumber) have subsided. That said, there was some caution with respect to potential removal of the mortgage interest deduction, as well as Federal Reserve policy on mortgage purchases and interest rates.

Homebuilding stocks initially looked strong on the report, but have trailed off with the broad market since then.