The National Association of Builders' (NAHB) measure of builder confidence took a big jump in November, rising to its highest level since May of 2006.  The NAHB/Wells Fargo Housing Market Index (HMI) jumped 5 points to 46, the seventh consecutive monthly gain.

The HMI is derived from responses to a survey sent by NAHB to its builder members which asks them to assess the current market for new homes on a scale of "good," "fair," or "poor" and quantify their expectations for the market over the next six months on that same sale.   They are also asked to rate the traffic of prospective buyers as "high to very high," "average," or "low to very low."  NAHB calculates scores for each component and a composite score.  Any number over 50 indicates that more builders view sales conditions as good than poor.

In addition to the composite index two out of three of the HMI's component indices registered gains in November. The component gauging current sales conditions posted the biggest increase, with an eight-point gain to 49 - its highest mark in more than six years. Meanwhile, the component measuring sales expectations for the next six months held above 50 for a third consecutive month with a two-point gain to 53.  The component measuring traffic of prospective buyers was unchanged at 35 following a five-point gain in the previous month.
"Builders are reporting increasing demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country," said NAHB Chairman Barry Rutenberg.   "In view of the tightening supply and other improving conditions, many potential buyers who were on the fence are now motivated to move forward with a purchase in order to take advantage of today's favorable prices and interest rates."

"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," observed NAHB Chief Economist David Crowe. "At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets."

All four regions of the country posted gains in their HMI three-month moving averages as of November. The South posted a four-point gain to 43, while the Midwest and West each posted three-point gains, to 45 and 47, respectively, and the Northeast posted a two-point gain to 31.

NAHB noted that its survey was conducted in the two weeks immediately following Hurricane Sandy and therefore does reflect builder sentiment during that period.