Surprise pop in the NAHB index

Well, what do you know? The National Association of Home Builders February market index climbed -- to 40 from 35 a month earlier. That's an 8-month high and above the consensus forecast of 40. All three sub-indices (measuring present sales, future sales and buyer traffic) popped.

I should point out the NAHB index is still down 16 points from a year earlier, and well off its R.E. bull market high of 72 in June 2005. But at the very least, this confirms other indicators that housing demand has climbed ever so slightly off its low of last summer. As for the future, the key questions are whether inventories will keep falling ... whether the economy can remain strong enough to support demand ... and whether credit tightening in the mortgage sector will get worse. I believe inventories are going to surprise on the upside, and that the spillover impact of all the subprime lending shocks could be serious enough to dent demand.