Builder confidence in the market for newly built, single-family homes posted a solid, five-point gain to 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for November, released recently. This marks the seventh consecutive monthly gain in the confidence gauge and brings it to its highest point since May of 2006.

"Builders are reporting increasing demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country," said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. "In view of the tightening supply and other improving conditions, many potential buyers who were on the fence are now motivated to move forward with a purchase in order to take advantage of today's favorable prices and interest rates." 

"While our confidence gauge has yet to breach the 50 mark -- at which point an equal number of builders view sales conditions as good versus poor -- we have certainly made substantial progress since this time last year, when the HMI stood at 19," observed NAHB Chief Economist David Crowe. "At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets."

Derived from a monthly survey that NAHB has been conducting for the past 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

Two out of three of the HMI's component indexes registered gains in November. The component gauging current sales conditions posted the biggest increase, with an eight-point gain to 49 - its highest mark in more than six years. Meanwhile, the component measuring sales expectations for the next six months held above 50 for a third consecutive month with a two-point gain to 53, and the component measuring traffic of prospective buyers held unchanged at 35 following a five-point gain in the previous month.

All four regions of the country posted gains in their HMI three-month moving averages as of November. The South posted a four-point gain to 43, while the Midwest and West each posted three-point gains, to 45 and 47, respectively, and the Northeast posted a two-point gain to 31. (Note, the HMI survey was conducted in the two weeks immediately following Hurricane Sandy and therefore does reflect builder sentiment during that period.)