Builder confidence made a strong comeback this month, surprising analysts and belying some of the gloom expressed by the National Association of Home Builders (NAHB) earlier this week about construction labor problems. NAHB said the NAHB/Wells Fargo Housing Market Index (HMI) rose 4 points from its July reading to 68.

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

The HMI dropped 2 points in July, to its lowest point since last November.  At that time NAHB attributed the slippage to concerns over the costs of construction.  This week the trade group said labor shortages faced by home builders were, in most occupations, the most severe in 17 years. 

Analysts polled by Econoday had expected the index to recover slightly, but the actual HMI number was higher than any predicted. The range was 63 to 66 with a consensus of 65.

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

The HMI is constructed from responses to a survey NAHB has conducted for more than 30 years among its new-home builder members.  They are asked to provide their 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 that more builders view conditions as good than poor.

All three HMI components posted gains in August. The component gauging current sales conditions rose four points to 74 while the index charting sales expectations in the next six months jumped five points to 78. Meanwhile, the component measuring buyer traffic increased a single point to 49.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 48. The West, South and Midwest all remained unchanged at 75, 67 and 66, respectively.