Reflecting growing consumer confidence and falling interest rates, the National Association of Home Builders released a report on Tuesday showing a significant increase in U.S. homebuilder confidence in the month of February.
The report said the NAHB/Wells Fargo Housing Market Index climbed to 62 in February after rising to 58 in January. Economists had expected the index to inch up to 59.
With the increase, the index continued to recover after hitting a more than three-year low of 56 in December.
"Ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market are helping to fuel builder sentiment," said NAHB Chairman Randy Noel.
He added, "In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season."
The much bigger than expected increase by the headline index reflected continued gains by all of the component indices.
The component gauging expectations in the next six months surged up to 68 in February from 63 in January, while the metric charting buyer traffic climbed to 48 from 44 and the index measuring current sales conditions rose to 67 from 64.
"The five-point jump on the six-month sales expectation for the HMI is due to mortgage interest rates dropping from about 5% in November to 4.4% this week," said NAHB Chief Economist Robert Dietz. "However, affordability remains a critical issue."
He added, "Rising costs stemming from excessive regulations, a dearth of buildable lots, a persistent labor shortage and tariffs on lumber and other key building materials continue to make it increasingly difficult to produce housing at affordable price points."
Next Tuesday, the Commerce Department is scheduled to release data on new residential construction in the month of December that was postponed due to the government shutdown.