Confidence among homebuilders in the United States increased in June. It got its largest gain since 2002. It is an indicator that the housing sector is gaining momentum. Most homebuilders said conditions for new construction are favorable at present, which is the first time since the housing crisis started seven years ago. This was according to the National Association of Home Builder/Wells Fargo Housing Market Index.
The housing market rally was due to the steady increase in home prices, low supply of properties for sale, and the slowing trend in foreclosures. But even with the positive indicators, the increase in the index came as a surprise.
Pete Flint, chief executive of online real estate company Trulia, said conditions in the housing sector were right for homebuilders’ confidence to increase as the supply of available homes still need to cope with the rising buyer’s sentiment.
The index gained to 52 in June from 44 in May. It was way above estimates made by analysts. The index increased 23 points compared to the same month last year. Readings over 50 mean more builders see market conditions as favorable instead of poor. This is the first time the index went up above the level since April 2006. It was also the highest since March of 2006.
The release of the data led to the increase in homebuilder shares. The PHLX Housing Index closed 1.6 percent higher. Toll Brothers shares and PulteGroup increased more than 2 percent. Lennar Corp gained 0.7 percent.
Investors were still concerned about the Federal Reserve on whether it would reinforce its stimulus program as its policy makers meet on Tuesday and Wednesday. The market wants to have some indicators from the Fed on when it would reduce its $85 billion bond purchases each month.
The QE3 have bolstered the economy and kept mortgage rates in historically low levels. The recent rally in market rates has increased concerns of headwinds that might affect the housing recovery.