Measures of builder confidence in the new home market rose again this month.  The third consecutive monthly increase in the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) brought that metric back to its highest level since January.

The HMI was at 55 in August, a two point gain from July.  The number is a composite based on responses to a monthly survey in which new home builders are asked for their perceptions about current single-family home sales and future prospects for such sales.  Any score over 50 indicates more builders perceive the market as good than perceive it as poor.

"As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market," said NAHB Chairman Kevin Kelly. "However, builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor."

In the survey, which NAHB has been conducting for 30 years, respondents are asked to rank home sales at present and their expectations for sales over the upcoming six months as "good," "fair" or "poor."  They are also asked to rate traffic of prospective buyers as "high to very high," "average" or "low to very low."  Each individual component receives a score from which the composite is derived.

Each of the three components posted gains in August. The indices gauging current sales conditions and expectations for future sales (6-month/longer-term home sales outlook) each rose two points to 58 and 65, respectively.  It was the highest score for the future sales index since August 2013 when it was at 68.  The index gauging traffic of prospective buyers increased three points to 42 but continues to drag down the composite score.  The buyer traffic measure, which finally climbed above 20 in January 2012 after 5-1/2 years in the teens was last above the milestone 50 mark in October 2005. 

"Each of the three components of the HMI registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming following an uneven spring," said NAHB Chief Economist David Crowe. "Factors contributing to this rise include sustained job growth, historically low mortgage rates and affordable home prices, which are helping to unleash pent-up demand."

Every region saw a gain in its three-month moving average HMI score in August. The Midwest posted a seven-point increase to 55 and the West registered a four-point gain to 56. The Northeast posted a two-point gain to 38 and the South was up one point to 52.