Confidence among home builders grew in August alongside the rising demand for new homes, according to the National Association of Home Builders and Wells Fargo Housing Market Index.

After falling last month to 64 due to rising material costs, the index increased once again in August to a level of 68 points, according to the HMI report.

“Our members are encouraged by rising demand in the new-home market,” NAHB Chairman Granger MacDonald said. “This is due to ongoing job and economic growth, attractive mortgage rates, and growing consumer confidence.”

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.

All three HMI components increased in August, including the component gauging current sales conditions, which rose four points to 74. The index charting sales expectations in the next six months jumped five points to 78, and the component that measures buyer traffic increased one point to 49.

“The fact that builder confidence has returned to the healthy levels we saw this spring is consistent with our forecast for a gradual strengthening in the housing market,” NAHB Chief Economist Robert Dietz said.

“GDP growth improved in the second quarter, which helped sustain housing demand,” Dietz said. “However, builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs.”

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