Home builders confidence is marching toward the 2014 high established in January as more buyers return to the market. The August NAHB/Wells Fargo Housing Index rose two more points to 55 approaching the 2014 high in January of 56. All three subcomponents of the index also increased, two to a high for the year.

Expectations for the next six months increased by two points to 65, the highest since August 2013 and the index for traffic rose three points to 42, the highest since December 2013. The current sales index rose two points to 58, which is a solid indication that new home sales reported by the Census Bureau and HUD later in August will show some recovery from the large June fall.

Regional indexes also showed increases when averaged over three months. Since the sample size begins to deteriorate for regions, a three month moving average is a better indicator of regional variation. The Midwest rose seven points to 55 but remains below the first two months of 2014. The West rose four points to 56 and also remains below the first three months of 2014. The Northeast rose two points to 38 and ties the February of 2014 level. The South rose one point to 52 but remains below February and January of 2014.

Builders continue to struggle with tight supplies and higher costs for labor, land and materials. The land shortage is causing some larger builders with their own source of credit to bid up the price of lots which will eventually show up in higher home prices. The land shortage is the result of tight credit for developers who have been unable to buy raw land and develop sites for builders. Until more credit is available land prices will continue to rise.

Tags: economics, hmi, home building, housing