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Despite slowing down in the past 3-4 months due to the recent spike in mortgage rates, rising home prices, tight credit availability and the political uncertainty in Washington, housing market recovery continues to gain momentum. The momentum is fueled by an increase in the demand for new homes, driven by an increase in consumer confidence and better job prospects.

According to the data released by The Conference Board on Dec 31, 2013, the Consumer Confidence Index in December improved to 78.1 from 72.0 in November.  We note that the Index had declined in October and November as Americans remained cautious about the labor market outlook.

However, the recent increase in Index reflects improving economic and labor market conditions. The increase in consumer confidence also implies that homebuyers will be more willing to purchase homes in the upcoming quarters.

A slew of housing data released lately clearly supports that housing recovery is still on. As per the latest data published by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, housing production across the U.S. rose 22.7% in the month of November, the highest increase in nearly six years.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), known as the homebuilder sentiment index, jumped 4 points to 58 in December from 54 in July. This was the seventh consecutive monthly increase in the index, showing that the recent interest rate hikes have not dampened housing recovery completely.

Rising interest rates notwithstanding, some companies like Lennar Corporation (LEN - Analyst Report) and Toll Brothers, Inc. (TOL - Analyst Report) beat the Zacks Consensus Estimate on both earnings and revenues in the fourth quarter of fiscal 2013 on the back of strong volume and prices.

However, other companies such as PulteGroup, Inc. (PHM - Analyst Report) and KB Home (KBH - Analyst Report) have been witnessing weak order trends as the sharp increase in interest rates led to increasing cancellation rates and lower orders. Increase in consumer confidence will have positive effect on order and cancellation rates of these companies.

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