Homebuilders' confidence hits highest level in five years

Homebuilders' confidence in the trajectory of the housing market hit its highest point in five years in May. 

Builder confidence in the market for newly built, single-family homes jumped five points to 29 this month from a downwardly revised reading in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index, released Tuesday.

This is the index's strongest reading since May 2007.

"While homebuilding still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back," said David Crowe, the NAHB's chief economist. 

"The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals and, more recently, rising materials prices."

Any reading below 50 represents negative sentiment, and the index has not eclipsed 50 since April 2006. 

Builders have been confident in the market since late 2011 as the sector finally shows signs of sustained recovery. 

Meanwhile, each of the index's components rebounded from April drops.

The components gauging current sales conditions and traffic of prospective buyers each rose five points to 30 and 23, respectively in May, with the buyer traffic hitting its highest level since April 2007. 

The component gauging sales expectations in the next six months rose three points, to 34.

Three out of four regions registered improving builder sentiment in May. The Northeast had a six-point gain to 32, and there were five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline to 29.

"Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April," said Barry Rutenberg, chairman of the NAHB. 

"It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase."