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August Builder Confidence Up, Reaches Record High in Midwest

The ""National Association of Home Builders'"":http://www.nahb.org/default.aspx (NAHB) Housing Market Index (HMI)--a measure of builder confidence--increased again in August, climbing three points to 59, its highest reading since November 2005, the group reported Thursday. The index has improved 15 points (34 percent) in the last three months.

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At the same time, the index reading for the Midwest rose to a record high (64), and the reading for the South hit the highest level (56) since April 2006. While NAHB's national survey began in January 1985, the regional readings began in December 2004.

The July index was revised down to 56 from the originally reported 57. Economists had expected the August index to slip to 56.

The strong August numbers--following the strong June and July reading--gave further evidence to a recovery in the housing sector.

Two of the three HMI components--the assessment of the current market and of sales six months in the future--increased in August, while the measure of buyer traffic was flat.

The current sales reading rose three points to 62, the highest level since January 2006, after July's level was revised down to 59 from the originally reported 60. The assessment of conditions six months out rose seven points to 68, the highest it's been since October 2005. The measure of buyer traffic remained at 45, the highest level since November 2005.

While the index for the Midwest and South each rose two points, the index for the Northeast was flat at 40 and for the West fell two points to 59--after soaring 11 points in July to 61.

The improvement in the national index followed the most recent Census Bureau/HUD report on new homes sales, which showed sales jumped 8.3 percent in June to a seasonally adjusted annual rate of 497,000--the strongest sales pace since May 2008--though both the median and average price of a new home dropped.

Census and HUD will report on July new home sales on August 23.

The increase in confidence could show up in the Census/HUD report on residential permits and starts. The report for July will be released Friday, while the report for August will be released next month. Those reports in recent months have shown a shift to multifamily activity.

Builder confidence improved with low inventories of new homes for sale. The inventory of new homes for sale in June, according to the most recent data from Census and HUD, was 161,000, the highest level since September 2011. The inventory of new homes for sale has increased for six straight months. The months' supply of homes for sale in June, a function of the inventory and the monthly sales pace, was 3.9. The months' supply has averaged 4.1 months this year; in December, it was5.3 months.

Meanwhile, the number of residential construction jobs remains sluggish--down about 400 in the last three months, according to the Bureau of Labor Statistics. Residential construction accounts for about 10 percent of all construction employment.

The HMI, built based on surveys conducted jointly by the NAHB and Wells Fargo, gauges builder perceptions of current single-family home sales and sales expectations for the next six months as ""good,"" ""fair,"" or ""poor."" The survey also asks builders to rate traffic of prospective buyers as ""high to very high,"" ""average,"" or ""low to very low."" Scores from each component are then used to calculate a seasonally adjusted index, where any number over 50 indicates that more builders view sales conditions as good than poor.

_Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:20 a.m. Eastern._