The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday increased to 47, up 2 points 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.
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 responding to the heightened demand by 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.
Even so, there are factors dragging on the housing recovery. Many Americans, particularly first-time homebuyers, are unable to qualify for a mortgage. And many can’t afford larger down payments that are being required by banks.
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.
Though new homes represent only a fraction of the housing market, they have an out-size impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics from the NAHB.