The housing market is showing signs of strength as homebuilder confidence grew in May to the second-highest point since the recession, according to the Housing Market Index from National Association of Home Builders and Wells Fargo.
Home builders increased their confidence in the market for newly built single-family homes by two points in May to 70.
This increase follows April’s dip in confidence, where the index fell to 68.
“This report shows that builders’ optimism in the housing market is solidifying, even as they deal with higher building material costs and shortages of lots and labor,” said NAHB Chairman Granger MacDonald.
Derived from a monthly survey that NAHB has been conducting for 30 years, the 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 for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates most homebuilders view conditions as good rather than poor.
Two of the three HMI components increased in May. The index which measures sales expectations in the next six months increased four points to 79 and the index which looks at current sales conditions increased two points to 76. However, the component measuring buyer traffic dropped one point to 51 in April.
“The HMI measure of future sales conditions reached its highest level since June 2005, a sign of growing consumer confidence in the new home market,” NAHB Chief Economist Robert Dietz said. “Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward.”