Builders' confidence in the market for new single-family homes increased for the seventh straight month as the National Association of Home Builders' housing market index — a monthly gauge of builder sentiment — rose to 46 in November from 41 in October.
Thomson Reuters' poll of economists predicted the index would hold at 41.
"Builders are reporting increasing demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country," according to NAHB Chairman Barry Rutenberg. "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," NAHB Chief Economist David Crowe said. "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 more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for 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 component indexes increased in November while one was flat. The current single-family home sales index soared to 49 from 41, its best reading in more than six years, the sales expectations index for the next six months rose to 53 from 51, and the traffic of prospective buyers index held at 35, its highest level since April 2006.