Phoenix homebuilders are seeing the light, so to speak, with sales trending upward for the past six months, according to a new report from  Keefe, Bruyette & Woods.

Analysts with KBW met with land developers, homebuilders and banks in Phoenix and found a generally optimistic tone with 2012 permits expected to grow by more than 50% while resale inventory levels have declined to less than a two-month supply.

Builders in the market include Meritage Homes, Taylor Morrison, Starwood Land Ventures and Terra West Communities.

"The Phoenix market is strong, and numerous people said that home sales activity significantly accelerated starting in November 'as if a switch suddenly turned on,' " said KBW. "The pace of activity through May remains robust."

The market saw its mix of homes for sale improve, KBW said, as the percentage of homes sold as REOs and short sales fell to 45% from as much as 70% last year.

Foreclosure inventory also is down 50% year-over-year, with much of that remaining supply in tertiary markets and with significant demand from investors who want to turn the homes into rentals.

KBW said builders interviewed noted home prices have increased 20% to 25% year-over-year through March.

"Phoenix is a nonjudicial state and the pricing dynamics of both foreclosures and rentals are such that these properties can generate cash yields of 7% to 8%, which remains attractive to investors," KBW said. "Participants in this market include Colony Capital (which recently acquired 220 homes in Arizonia, California and Nevada), Starwood Property Trust(STWD), Kohlberg Kravis Roberts & Co. (KKR) (in conjunction with Beazer Homes), and others."

As the resale market in Phoenix gets more competitive, KBW believes homebuilders will be in the spot to attract more buyers. Some builders have already raised their prices by at least 1%, KBW said.