Sentiment among homebuilders rose for the first time in five months as job gains and tax cuts helped keep buyer demand healthy amid rising prices and mortgage rates, according to data Tuesday from the National Association of Home Builders/Wells Fargo.

The Housing Market Index strengthened by two points to 70 (the estimate was 69). The prior month's reading was revised down to 68, the lowest since October. The current sales measure for single-family homes rose to 76 from 74, the gauge of prospective buyer traffic remained unchanged at 51 and the index of the six-month sales outlook remained unchanged at 77.

Homebuilder sentiment

Sentiment remains close to an 18-year high, with unemployment below 4% for the first time since 2000, and government tax cuts signed into law in December potentially helping motivate some consumers to purchase a home this year. Such factors are mitigating other forces that may restrain optimism among developers: Rising lumber prices are making building more costly and mortgage borrowers are confronting escalating interest rates.

"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 confidence gauge rose in the Midwest to a three-month high and remained unchanged in the Northeast. The index fell in the South to a seven-month low and slipped in the West to lowest since July. The three-month moving average fell one point in the Midwest and South, and remained unchanged in the Northeast and West.

Bloomberg News