Homebuilders Climb on Strong Housing Data

After climbing to within 10 points of record high, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) fell about 0.5% late in trading today. There wasn't a clear reason for the late sell-off and economic data today looked strong once again.

The U.S. Census Bureau actually reported the strongest month of new home sales in two years in May at a seasonally adjusted annual rate of 504,000 units, easily topping the 440,000 unit estimate from economists. The S&P/Case-Shiller Home Price Index also showed a 10.8% increase in home prices from a year ago -- a strong result, even if it didn't meet economists' 11.4% estimate.   

We also need to keep in mind that results were skewed higher due to a 54.5% increase in sales in the Northeast, which was hit by bad weather earlier this year. Month-to-month data can often be volatile, and strength in the Northeast will likely level out as the year goes on.

If interest rates stay low, new home contraction could continue to rise.

Homebuilders climb on optimism
Given the strength in new homebuilding, it's no surprise that Toll Brothers, KB Home (NYSE: KBH  ) , and Lennar (NYSE: LEN  ) are all up between 1.5% and 2% today.

Lennar was specifically singled out by Cleveland Research, which has the stock at an outperform rating and thinks the company will beat estimates in the fiscal second quarter. That report comes on Thursday before the market opens, so it won't be long before we hear how the market is doing from those with boots on the ground.

Meanwhile, KB Home announced a partnership with SunPower to include solar energy storage in three cities in California this year, part of a pilot program that could go national. KB Home has been a leader in solar installations by new homebuilders, and this adds to those offerings. KB announces earnings on Friday.

The new home market may look stronger than it actually is based on May's data, but that doesn't mean the recovery won't help homebuilders. The Case-Shiller Index is showing continued strength in housing, and one way to take advantage of those high prices is to build new homes, adding supply to the market. As prices rise, so will homebuilder profits, and today's data is a sign that the rest of the week should be positive as earnings roll out.

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