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Builder Confidence Surges Again in July

After surging in June, the National Association of Home Builders' (NAHB) Housing Market Index (HMI)--a measure of builder confidence--shot up again in July, climbing six points to 57, its highest reading since January 2006, the ""group"":http://www.nahb.org/news_details.aspx?newsID=16373 reported Tuesday. The two-month 13-point gain was the strongest two-month increase since January-February 1992, when the index improved 14 points.

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The June index was revised down to 51 from the originally reported 52, but was still positive (above 50) for the first time since April 2006. Economists had expected the July index to remain at 52.

The strong July numbers--following a still-strong June--gave further evidence to a recovery in the housing sector.

All three of the HMI components--builder assessment of current sales, of sales six months in the future and buyer traffic--increased for the third month in a row.

The current sales reading rose five points to 60 (the highest level since February 2006), the assessment of conditions six months out rose seven points to 67 (the highest it's been since October 2005), and the measure of buyer traffic rose five points to 45 (the highest level since November 2005).

The increase in the total index was led by a 12-point jump in the West to 62, the highest level since May 2006. The index rose seven points two 62 in the Midwest--the highest ever in that region--three points in the Northeast to 41, and two points to 54 in the South.

The last time all three components improved for three months in a row was December 2011 through February 2012.

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The improvement in the national index followed the most recent Census Bureau/HUD report on new homes sales, which showed a 2.1 percent gain in sales from 466,000 to 476,000 in May, though both the median and average price of a new home dropped.

Census and HUD will report on May new home sales on July 24.

The increase in confidence could show up in the Census/HUD report on residential permits and starts. The report for June will be released Wednesday, while the report for July will be released next month. Those reports in recent months have shown a shift to multifamily activity.

Builder confidence improved with low inventories of new homes for sale. The inventory of new homes for sale in May--the most recent data reported by Census and HUD--was 161,000, the highest level since September 2011. The inventory of new homes for sale has increased for five straight months. The months' supply of homes for sale in May, a function of the inventory and the monthly sales pace, was 4.1. The months' supply has averaged 4.0 months this year; in December, it was5.3 months.

The confidence reading came as construction jobs are increasing--up 190,000 in the last 12 months, about 3.4 percent with about 13,000 new residential construction jobs. Residential construction is about 10 percent of all construction employment. The number of unemployed construction workers, according to the Bureau of Labor Statistics, fell to 891,000 in May (most recent data) from 1,077,000 in April as construction job openings increased. In May, there were 8.7 unemployed construction workers for every available job, down from 10.7 in April.

The HMI, built based on surveys conducted jointly by NAHB and Wells Fargo, gauges builder perceptions of current single-family home sales and sales expectations for the next six months as ""good,"" ""fair,"" or ""poor."" The survey also asks builders to rate traffic of prospective buyers as ""high to very high,"" ""average"" or ""low to very low."" Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

_Hear Mark Lieberman every Friday on P.O.T.U.S. Radio, Sirius-XM 124, at 6:20 a.m. Eastern._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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