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Strong Sales Report Sends Home Builder Shares Higher

Shares of U.S. home builders rose after a stronger-than-expected report on November new single-family home sales suggested to some analysts that the housing market may have bottomed.

New home sales rose 3.4% from the previous month to a 1.047 million annual rate, above economists' forecasts for a 1.018 million rate, according to the Commerce Department. But sales were down 15.3% from a year earlier.

Shares of home builders each gained more than 1%, with the overall Dow Jones Home Construction index gaining 10 points, or 1.4%, to 729.58. The index has lost 21% this year, and is down about 35% from its high in July 2005.

"The new home sales report did beat the consensus forecast and that, I think, provides further evidence to support the view that the worst of the housing downturn may have passed," said Alex Beuzelin, senior market analyst with Ruesch International in Washington.

But talk of a bottom may be premature since the government data doesn't capture cancellation rates, said John Tomlinson, home building analyst with Majestic Research in New York. Majestic's own survey of 36 top markets has showed high rates of cancellation, he said, as buyers demand higher incentives before closing on a home.

Many home buyers are willing to walk away from their deposits to seek a better deal.

"It's a quiet week in the market," Tomlinson said. "On the surface, the data may seem somewhat positive, but you need to take a deeper dive into the metrics before concluding that we've reached a bottom and things are picking up."

Major companies in the sector include KB Home, Toll Brothers, D.R. Horton, Lennar Corp., Ryland Group, and Meritage Homes, all traded on the New York Stock Exchange.

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