The U.S. housing market hit a critical milestone today for the first time in more than seven years. According to a monthly survey conducted by the National Association of Home Builders, a majority of builders now view conditions in the market as "good," rather than "poor."
As you can see in this chart, the June reading of 52 was the first time the association's Housing Market Index came in above 50 since April of 2006 -- a reading of more than 50 indicates that more builders view sales conditions as good than do poor.
"Surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases," said NAHB chairman Rick Judson. "With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes."
The news adds substance to positive pronouncements from some of the nation's biggest homebuilders over the last few months. Robert Toll, executive chairman of Toll Brothers (NYSE:TOL), the nation's largest luxury homebuilder, noted in May:
We believe the industry is still in the early stages of a recovery. ... As home prices continue to increase, homeowners' balance sheets should continue to improve as should bank balance sheets. People will feel wealthier, banks will lend more and the economy should continue to improve: We believe this should drive demand and, therefore, home prices are likely to continue to rise.
The stronger demand which the housing industry saw throughout 2012 has carried into the spring selling season of 2013. We experienced higher traffic in our communities with buyers feeling a greater sense of urgency given the combination of limited product inventory and rising prices found in many markets throughout the country.
Our first quarter results clearly reflect continued improvement in the marketplace. Current market conditions are driven by strong demand resulting from low interest rates and attractive home prices, which have led to very affordable monthly payments, compared to increasing rental rates. Supply continues to be limited by low home inventories and fewer competing homebuilders. Accordingly, pricing trends have been positive, as shown by a 13% increase in the average sales price of homes in our backlog at quarter-end, compared to last year.
Given the importance of housing to the economic recovery, it should be no surprise that stocks are rallying on the heels of this news. Both the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 were up big today.
John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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