Confidence among home builders edged up in November to its highest reading in months and its second highest reading since the recession, according to the Housing Market Index by the National Association of Home Builders and Wells Fargo.

Builder confidence increased two points to an index level of 70 in November, the second highest since July 2005 and highest report since March.

“November’s builder confidence reading is close to a post-recession high — a strong indicator that the housing market continues to grow steadily,” NAHB Chairman Granger MacDonald said. “However, our members still face supply-side constraints, such as lot and labor shortages and ongoing building material price increases.”

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 November, including the component measuring current sales conditions, which rose two points to 77. The index which looks at buyer traffic increased two points to 50 in November, however the index which measures sales expectations over the next six months dropped one point to 77.

“Demand for housing is increasing at a consistent pace, driven by job and economic growth, rising homeownership rates and limited housing inventory,” NAHB Chief Economist Robert Dietz said. “With these economic fundamentals in place, we should see continued upward movement of the single-family housing market as we close out 2017.”

But homebuilders aren’t the only ones who see mounting potential for new home sales. Freddie Mac’s monthly Outlook for September forecasted new home sales will be the main driver of total home sales going into 2018.

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