After dropping in April, builder confidence turned around in May, reflecting improvement in all three index metrics — current sales conditions, sales expectations and traffic of prospective buyers.
The National Association of Home Builders/Wells Fargo Housing Market Index dropped from an index score of 44 to a revised score of 41 in April before turning back around in May to 44.
"Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies," said NAHB Chairman Rick Judson.
Judson added that this is an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots and labor.
"While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders' views of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force," said NAHB Chief Economist David Crowe.
The monthly survey, which has been conducted for 25 years, gauges builder perceptions of current single-family home sales and expectations for the next six months. The survey also asks builders to rate traffic of prospective buyers.
All three components posted gains in May.
The view of current sales conditions rose four points to 48, while the index gauging expectations for future sales saw a slight increase of one point to 53 — representing the highest level since February 2007. The portion of the index that gauges traffic of prospective buyers gained three points to 33.
The three-month moving averages for regional HMI scores revealed no movement in the Northeast, Midwest or South, which held unchanged at index scores of 37, 45 and 42, respectively. Only the West recorded a decline of six points, dropping to a score of 49 in May.
Analysts at Econoday noted, "Lack of supply has been a big factor limiting the new home market this year as has the cold weather so far this spring which is a negative for construction as it is for buyer traffic. Tomorrow, housing starts data will be released and are expected to show a slowing in starts but an uptick for permits."