The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index (HMI) rose from 41 in October to 46 in November. This is the seventh consecutive monthly increase in the HMI, having risen from 24 in April. One year ago, the index stood at 19. As such, there has been a tremendous increase in confidence in 2012, with higher sales and starts helping to propel economic growth in the sector. Builder confidence increased in November in each region of the country, with the largest gains seen in the Midwest and South.

The index for current sales of single-family homes was one of the primary drivers of November’s HMI rise, up from 41 to 49. This brings the HMI closer to the threshold of 50, which marks the neutral point in the index where home builders are equally split between those who are either positive or negative about sales conditions. Looking forward six months, single-family sales should continue to grow modestly, with that index up from 51 to 53.

NAHB Chief Economist David Crowe noted the “substantial progress” made in the housing market over the past year, but he also observed that there continue to be headwinds in the sector. He writes, “At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets.”

Tomorrow, the Census Bureau releases new housing starts and permits data. Last month, both had unexpectedly large gains, with both near 900,000 units at the annual rate. I would expect for those gains to pull back somewhat, while continuing the longer-term trend upward. The consensus estimate for October housing starts is around 840,000 units. (continue reading…)