Builder confidence inched slightly higher in October, bringing it to its strongest level since June of 2006, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The October gain also marks the sixth consecutive month for increases in the index, which measures builder confidence about the direction of the new-home market.

"Many builders are reporting increases in the number of serious buyers visiting their sales offices, and the overall confidence measure is much higher than it was at this time last year," says Barry Rutenberg, NAHB Chairman.

The monthly index measures builder perceptions of current single-family home sales, sales expectations, and buyer traffic.

While builders’ confidence about the recovery continues to improve, housing experts say there are still several challenges ahead for the new-home sector.

"The slight gain in builder confidence this month is an indication that, while still moving forward, the speed at which the housing recovery is proceeding is being moderated by the various constraints such as tight credit, difficult appraisals and more recently, the limited inventory of buildable lots in certain markets," says David Crowe, NAHB chief economist.

Source: National Association of Home Builders

Builders broke ground on more homes in November, a 9.3 percent increase over October, reaching the highest level since April 2010, the Commerce Department reported Tuesday. Year-over-year, new-home starts were up 24.3 percent in November.

Home construction increased to a seasonally adjusted annual rate of 685,000 homes in November. However, while it’s an improvement, the rate is still below the 1.2 million home pace that economists consider healthy for the new-home sector.

November’s increase was mostly driven by construction of multi-family homes with at least two units, which soared 25.3 percent in November. Construction of single-family homes increased 2.3 percent for the month.

Building permits jumped 5.7 percent in November, the highest increase since March 2010, with the increase mostly driven by apartment construction permits.

Builders Feeling More Confident

Meanwhile, for the third consecutive month, builder confidence in the new-home market continued to edge up, according to the National Association of Home Builders/Wells Fargo Housing Market Index for December. The index is at its highest point since May 2010.

While the index reached 21 in December, it is still far below 50, a reading which indicates more builders view conditions as good rather than poor. The index hasn’t reached that point since the housing boom in April 2006.

“While builder confidence remains low, the consistent gains registered over the past several months are an indication that pockets of recovery are slowly starting to emerge in scattered housing markets," Bob Nielsen, chairman of the National Association of Home Builders, said in a statement. "However, the difficulties that both builders and buyers continue to experience in accessing credit for new homes are holding back potential sales even in areas where economic conditions are improving."

Source: “Apartment Construction Spurs 9.3% Jump in Housing Starts, But Level Remains Low,” Associated Press (Dec. 20, 2011); “U.S. Nov. Housing Starts +9.3% to 685K; Consensus +0.3%,” Dow Jones International News (Dec. 20, 2011); and National Association of Home Builders

In September, single-family home building increased 1.7 percent, while apartment building jumped 53.4 percent.

Builders began work on a seasonally adjusted 658,000 homes in September. While that marks a big improvement, the level still remains only about half of the 1.2 million pace that economists consider healthy for the new-home sector.

Builders are continuing to struggle to compete against heavily discounted foreclosures and short sales that are plaguing many markets.

Building permits, which serve as a measure of future building, dropped 5 percent in September, the Commerce Department reported.

Yet, builders seem to be getting more optimistic that the new-home market is showing signs of improvement. The National Association of Home Builders reported on Tuesday that industry sentiment rose in October to 18, the highest level in over a year. However, overall sentiment about the industry remains low--any reading below 50 indicates negative sentiment about the housing market (a level that hasn’t been reached since April 2006).

Source: “September Home Building Rose 15%, But Permits for Future Homes Fell 5%” Associated Press (Oct. 19, 2011)