The National Association of Home Builders/Wells Fargo builder sentiment index released Thursday rose this month to 60, the highest level since November 2005.
The latest reading is unchanged from May, which was revised upward one point from 59. July’s reading is up from 53 a year ago. Readings above 50 indicate more builders view sales conditions as good, rather than poor.
Builders’ view of current sales conditions and their outlook for sales over the next six months also rose. A measure of traffic by prospective buyers fell slightly.
”As we head into the second half of 2015, we should expect a continued recovery of the housing market,” said Tom Woods, the NAHB’s chairman.
The builder survey follows a report last month showing sales of new homes accelerated in May to the strongest pace since February 2008 after a sluggish start to the year. Sales rose 2.2 percent to a seasonally adjusted annual rate of 546,000. All told, new home sales are up 24 percent through the first five months of this year. June home sales data are due out next week.
Strong job growth and relatively low mortgage rates have fueled the increase in sales. Borrowing costs are low by historical standards, though they have been rising in recent weeks.
Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage increased to 4.09 percent from 4.04 percent a week earlier. The new level is the highest since last October.
The big question is whether the heightened optimism will make builders willing to build more homes on ”spec,” or before they’re sold. Builders typically invest in putting up more spec homes when they feel good about the likelihood that the homes will be snapped up sooner, rather than later.
”We’ve been seeing a lower amount of speculative building than we usually do,” said Stephanie Karol, a U.S. economist at IHS Global Insight.
More spec-home construction would also help alleviate a drop in the number of new homes for sale.
Rising demand has caused the supply of new homes to dwindle to about 4.5 months, compared to the six months’ supply generally associated with a healthy market. Many builders also struggle with shortages of labor and land ready for home construction.
Builders broke ground on fewer homes in May, though the pace of construction remains significantly higher than a year ago. Housing starts are up 6 percent through the first five months of the year. They reached a seasonally adjusted annual rate of 1.04 million homes in May. Home construction figures for June are due out Friday.
While builder optimism may be back to housing-boom levels, the pace of home construction remains far below. In June 2005, housing starts hit a seasonally adjusted annual rate of 2.05 million homes.
The latest NAHB index was based on responses from 268 builders. Its measure of current sales conditions for single-family homes rose one point to 66, while builders’ outlook for sales over the next six months rose two points to 71. A gauge of traffic by prospective buyers dipped one point to 43.
Though new homes represent only a fraction of the housing market, they have an outsize 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 NAHB data.