Home Builder Morale Boost Goes Beyond Winter Rally

Home builder morale rose to a five-year high in May and is better than it was during the mild winter months, suggesting the recent rally isn't just a weather-related anomaly.

The National Association of Home Builders sentiment index climbed to 29 from 24 in April. Readings for current conditions, the six-month outlook and traffic also rose, nearing or besting winter highs.

In intraday trading, Lennar (LEN), D.R. Horton (DHI) and KB Home (KBH) were each up more than 4%. PulteGroup (PHM) and Toll Brothers (TOL) advanced more than 2%.

The Building-Residential/Commercial group, No. 1 out of IBD's 197 industries this week, climbed to its highest level since Aug. '07.

Do-it-yourself retail giant Home Depot (HD), which reported in-line earnings and sales below estimates Tuesday morning, was off 1.6%.

Homebuilders reported higher orders and backlogs in their latest quarterly earnings, in line with separate data pointing to stabilization in the housing market.

Readings had been strong in February and March but retreated in April. But the latest rebound could point to some underlying strength. The NAHB's traffic subindex jumped to 23 in May from 18, also hitting a five-year high.

The overall index is still historically low and still far from the break-even level of 50. Readings above that mean more builders see good conditions than bad.

NAHB also noted obstacles to housing persist, such as access to credit, "inaccurate" appraisals, and rising materials prices. Data on housing starts come out Wednesday, offering another opportunity for a stock lift.

by Jason Ma Investor's Business Daily May 15, 2012

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