Homebuilder confidence rose two points to 70 in May after a downwardly revised April reading of the National Association of Home Builders/Wells Fargo Housing Market Index.

"Tight housing inventory, employment gains and demographic tailwinds should continue to boost demand for newly-built single-family homes," NAHB Chief Economist Robert Dietz said in a statement. "With these fundamentals in place, the housing market should improve at a steady, gradual pace in the months ahead."

The tough break is what everyone has been talking about lately, namely that rising building costs are making it nearly impossible to meet the demand for reasonably priced starter homes.

"The solid May report shows that builders are buoyed by growing consumer demand for single-family homes. However, the record-high cost of lumber is hurting builders' bottom lines and making it more difficult to produce competitively priced houses for newcomers to the market," NAHB Chairman Randy Noel said in a statement.

Sales conditions have improved by two points as well, according to the NAHB report, hitting 76 this month. Buyer traffic and expectations over the next six months remain unchanged at 51 and 77, respectively.

Regionally, the West and Northeast are standing pat at 76 and 55, respectively. The South and the Midwest were not quite as strong and both lost a point in May, inching down to 72 and 65, respectively.

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