Homebuilder confidence has seen a substantial improvement in the month of July, according to a report released by the National Association of Home Builders on Tuesday, with the index of homebuilder confidence rising to a new five-year high.
The report showed that the NAHB /Wells Fargo Housing Market Index jumped to 35 in July from 29 in June, marking the biggest monthly increase in nearly a decade. Economists had expected the index to edge up to a reading of 30.
With the much bigger than expected increase, the housing market index rose to its highest level since coming in at 36 in March of 2007.
NAHB Chief Economist David Crowe said, "Combined with the upward movement we've seen in other key housing indicators over the past six months, this report adds to the growing acknowledgement that housing - though still in a fragile stage of recovery - is returning to its more traditional role of leading the economy out of recession"
"This is particularly encouraging at a time when other parts of the economy have begun to show softness, and is all the more reason that the challenges constraining housing's recovery - namely overly tight lending conditions, poor appraisals and the flow of distressed properties onto the market - need to be resolved," he added.
The substantial increase by the housing market index reflected significant increases by the three components of the index.
The components gauging current sales conditions and traffic of prospective buyers both rose by six points in July, climbing to 37 and 29, respectively.
Additionally, the component gauging sales expectations for the next six months surged up to 44 in July from 33 in June.
The components gauging current sales conditions and traffic of prospective buyers both reached their best levels since February of 2007, while the component gauging sales expectations for the next six months reached its highest level since April of 2007.
The report also showed notable increases in homebuilder confidence in every region of the country. The index for the West showed a particularly strong increase, jumping to 44 in July from 32 in June.
The index for the Northeast rose by eight points to 36, the index for the South increased by five points to 32 and the index for the Midwest edged up by three points to 34.
Wednesday morning, the Commerce Department is scheduled to release a separate report on new residential construction in the month of June.
Economists expect housing starts to rise to an annual rate of 745,000 in June from 708,000 in May, while building permits are expect to dip to 775,000 from 780,000.
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