The National Association of Home Builders/Wells Fargo builder sentiment index released Dec. 18 increased 2 points to 47 from a revised 45 in November. That’s the highest reading since April 2006, just before the housing bubble burst.
Readings below 50 suggest negative sentiment about the housing market. The last time the index was at or above that level was in April 2006, with a reading of 51. It has been trending higher since October 2011, when it stood at 17.
The latest index, which is based on responses from 441 builders, reflects growing optimism that a turnaround in housing will endure after years of stagnation.
“While there is still much room for improvement, the consistent upward trend in builder confidence over the past year is indicative of the gradual recovery that has been taking place in housing markets nationwide and that we expect to continue in 2013,” said David Crowe, the NAHB’s chief economist.
A component of the latest builder confidence survey that measures current sales conditions rose 2 points to 51, the highest level since April 2006. A gauge of traffic by prospective buyers increased 1 point to 36, also the highest reading since April 2006.
However, the index tracking builders’ outlook for sales over the next six months slipped 1 point to 51, back to where it was two months ago.
More people have started looking to buy homes, encouraged by a gradually improving economy, a steady rise in home values and mortgage rates that have been low all year. At the same time, the inventory of previously occupied homes available for sale has fallen sharply, reducing the competition for newly built homes.
Sales of new homes fell slightly last month, dragged lower by steep declines in the Northeast partly related to Superstorm Sandy. But they were still 17 percent higher in October than the same month a year ago.
Builders are locking up more land and ramping up construction. All told, builders broke ground on new homes and apartments in October at the fastest pace in more than four years.
Olson Homes, which builds homes in Southern California priced roughly from $300,000 to $700,000, said demand has picked up since February, and the company now projects sales will be up 45 percent for the year.
“We’ve had the best fourth quarter I’ve seen since probably 2005-2006,” said Scott Laurie, Olson Homes’ president. “Sales have been unbelievably strong.”
Olson has been acquiring more land in coastal cities and making plans to open new communities before spring, which is traditionally the peak period in the year for home sales. The builder also has ramped up hiring. It has increased its work force 25 percent this year, to 70 employees.
The moves reflect Laurie’s builder’s belief that the housing recovery is now on a sustained track. “We think we’re definitely past the worst of the market,” he said.
At Houston-based David Weekley Homes, which builds homes in eight states, sales are up 40 percent from last year. That’s allowed the builder, which sells homes priced from $150,000 to $1 million, to raise prices as much as 5 percent.
CEO John Johnson said that the market is better than it has been in the past five years, but he’s not sold yet that housing is locked on course for a full recovery because unemployment remains high. “Long-term, that has to improve for the market to really come back to where it should be,” Johnson said.