Homebuilder confidence has unexpectedly shown a modest improvement in the month of July, according to a report released by the National Association of Home Builders on Tuesday.

The report said the NAHB/Wells Fargo Index inched up to 65 in July after dropping to 64 in June. Economists had expected the index to come in unchanged.

"Builders report solid demand for single-family homes," said NAHB Chairman Greg Ugalde. "However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes."

The unexpected uptick by the housing market index reflected single-point increases by all three of the component indices.

The metric charting buyer traffic crept up to 48, while the component gauging expectations in the next six months and the index measuring current sales conditions inched up to 71 and 72, respectively.

On Wednesday, the Commerce Department is scheduled to release a separate report on new residential construction in the month of June.

Housing starts are expected to dip to an annual rate of 1.261 million in June after unexpectedly dropping to a rate of 1.269 million in May.

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