PhotoAnother indication that the housing market is continuing to strengthen.

The National Association of Home Builders (NAHB/Wells Fargo Housing Market Index (HMI), which measures builder confidence, rose two points in May to a level of 70 -- the second highest reading since the housing downturn.

“This report,” said NAHB Chairman Granger MacDonald, “shows that builders’ optimism in the housing market is solidifying, even as they deal with higher building material costs and shortages of lots and labor.”

The HMI is derived from a monthly survey gauging builder 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.

Gauging the market

Two of the three HMI components registered gains in May. The index charting sales expectations in the next six months jumped four points to 79 while the index measuring current sales conditions increased two points to 76. The component appraising buyer traffic, however, edged one point down to 51.

The three-month moving averages for HMI scores posted gains in three out of the four regions. The Northeast and South each registered three-point gains to 49 and 71, respectively, while the West rose one point to 78. The Midwest was unchanged at 68.

“The HMI measure of future sales conditions reached its highest level since June 2005, a sign of growing consumer confidence in the new home market,” said NAHB Chief Economist Robert Dietz. “Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward.” 


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