U.S. homebuilders are feeling more confident about their sales prospects, reflecting strong demand for newly built homes with existing homes in short supply.
The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday rose two points to 70 this month. That's up from a revised reading of 68 in April and snaps a four-month slide in builder confidence.
Any reading above 50 indicates more builders see sales conditions as good rather than poor. The index has remained above 60 since September 2016.
May's index exceeded expectations for a reading of 69, according to FactSet.
Builders' view of current sales conditions rose two points to 76 this month. The outlook for sales over the next six months held at 77. A measure of buyer traffic held steady at 51.
"Tight housing inventory, employment gains and demographic tail winds should continue to boost demand for newly-built single-family homes," said Robert Dietz, the NAHB's chief economist.
Homebuyers have been snapping up newly built houses as the economic outlook has continued to improve in recent months.
Sales of new U.S. homes jumped 4 percent in March to a seasonally adjusted annual rate of 694,000. For the first three months of 2018, sales are running 10.3 percent higher than a year earlier. April data on sales of new and existing homes are due out next week.
The solid sales growth for new homes shows that many would-be buyers can't find existing homes up for sale. Listings for existing homes sank to the lowest levels on record for March.
So far, mortgage interest rates have not derailed sales. The average rate on 30-year, fixed-rate mortgages held steady last week at 4.55 percent. The benchmark rate rose steadily for most of April, reaching its highest level in more than four years. A year ago, the rate averaged 4.05 percent.
The Fed has signaled that it will raise rates twice more this year, after having done so initially in March, and most economists foresee the next increase in June. Some Fed watchers have been cautioning that any lasting uptick in inflation or in economic growth might spur the Fed to pursue an additional rate increase before year's end.
Despite the overall increase in confidence this month, builders are facing record-high prices for lumber, the NAHB said. Those costs are contributing to rising home prices, making new homes less affordable, especially for first-time buyers.
In addition to higher materials costs, builders have been struggling to find the skilled workers they need to start new projects. They've also been hampered by a lack of ready-to-build land.
Single-family home construction slipped 3.7 percent in April. The pace of homebuilding is still below its long-run average of about 1.5 million houses and apartments a year. Still, single-family home construction is up 5.2 percent from a year ago.