Builder confidence shot up in December, reaching the highest level the National Association of Home Builders (NAHB) has recorded in 18 years.  NAHB said its Housing Market Index (HMI), which is cosponsored by Wells Fargo, gained 5 points to 74 from a downwardly revised (from 70) November reading.

The Index, which measures NAHB's new home builder-members confidence in the market for newly constructed homes, was last at this level in July 1999.  NAHB has been conducting the monthly survey for more than 30 years.

NAHB asks builders for 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 registered gains in December. The component measuring buyer traffic, which has surpassed the 50-point mark in only a scattered few months since the early 2000s, jumped eight points to 58.  The index gauging current sales conditions rose four points to 81 and the index charting sales expectations in the next six months increased three points to 79.

NAHB Chief Economist Robert Dietz said of the results, "The HMI measure of home buyer traffic rose eight points, showing that demand for housing is on the rise. With low unemployment rates, favorable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family construction sector next year."

Regional scores are presented as three-month moving averages. The Midwest climbed six points to 69, the South rose three points to 72, the West increased two points to 79 and Northeast inched up a single point to 54.