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Carpenters work to enclose a roof on a home being built in Sprinfield, Ill.

Seth Perlman/AP

The latest reading on U.S. homebuilder confidence isn't having much impact on homebuilding stocks. The National Association of Home Builders reported on Tuesday that its housing market index rose 3 points in September, to 40. Now, that's still below the threshold of 50 that separates good conditions from poor – but it beat the consensus estimate from economists, marked the fifth straight monthly gain and touched its highest level since June, 2006.

Yet, there was no euphoria. The S&P 500 homebuilding index dipped 0.6 per cent, which followed Monday's 1.9 per cent decline. It's hard to be too concerned here, given the index has risen more than 94 per cent in 2012. Among the 154 industry groups within the S&P 500, homebuilders are leading the way.

But it does call out for some kind of explanation: Is all the good news on the U.S. housing market now priced in?

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In its last monetary policy statement, released last week, the Federal Reserve upgraded its assessment of the housing sector from "depressed" to acknowledging that it "has shown some further signs of improvement, albeit from a depressed level."

Curiously, not all the news is good though. David Crowe, NAHB chief economist, noted on Tuesday that there are rising concerns about a lack of building lots in certain markets, along with the rising cost in building materials.

"Given the fragile nature of the housing and economic recovery, these are significant red flags," he said in a release.

Plus, builder confidence is one thing and more concrete housing data is another. On Wednesday, investors get a look at the latter, with the latest reports on mortgage applications, housing starts, building permits and existing home sales.

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