Builder confidence hit its highest mark in more than six years in November, as the homebuilding industry continues to take strides towards a recovery.

By Peter Ricci

The National Association of Home Builders/Wells Fargo Housing Market Index, the nation’s most reputable measure of homebuilder confidence, rose five points in November, increasing the overall index to 46, its highest point since May of 2006.

The Housing Market Index tracks the market for newly-built single-family homes, and its increase in November marks te seventh consecutive month that the index has increased.

Builder Confidence Continues its Progress

The Housing Market Index is divided into three components, and two of those components posted gains in November, as the NAHB reported:

• The component that measures current sales conditions rose an impressive eight-points from October to November, hitting its highest mark in six years.
• Similarly positive was the component for sales expectations for the next six months, which increased two points to 53; for three straight months now, that component has been more than 50, which means more homebuilders see conditions as good than bad (and which makes perfect sense, in light of the latest homebuilding stats from the Census Bureau).
• The only component that didn’t increase remained unchanged – traffic of prospective buyers held steady at 35, following last month’s five-point gain.
• Regionally, all segments of the U.S. posted gains in their respective Housing Market Indexes, with the South’s rising four points to 43, the Midwest and West rising three points to 45 and 47, and the Northeast by two points to 31.

Housing Market Index – Nearing a Milestone

The Housing Market Index is derived from a monthly survey the NAHB has been conducting for the last 25 years, and in the survey, builders are asked to rate the expectations on a number of building-related subjects from “good,” to “fair,” to “poor.” When the index reaches 50, that means more builders will see the market favorably than unfavorably, which will be a big deal for the homebuilding industry, as NAHB Chief Economist David Crowe explained.

“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,” he said.