U.S. Home Builder Confidence Index Surges to 19 In April

Encouraging news on the housing front, as National Association of Home Builders Housing Market Index unexpectedly surged to 19 in April from 15 March, the group announced Thursday.

Economists surveyed by Bloomberg News had expected the index to rise to 16 in April from 15 in March. The index was at was at 17 in February, 15 in January, and 16 in December. The index also hit a cycle-low of 8 in January 2009.

The NAHB Housing Market Index measures builder perceptions of current single-family home sales, their sales expectations for the next six months, and the traffic of prospective buyers. Index levels over 50 indicate that more builders view sales conditions as good than poor.

All three index components rose in April. The current sales conditions component jumped 5 points to 20; the six-month sales expectations component rose 1 point to 25 -- exceeding its 2009 high of 24; and the component gauging traffic of prospective buyers surged 4 points to 14.

Although not as strong an indicator as the housing starts report or the new/existing home sales data compiled by the U.S. Commerce Department, or the S&P/Case-Shiller Home Price Survey, economists and market analysts still monitor the NAHB index because of the information on builder sentiment it provides. Essentially, it offers a window into the perceptions and confidence levels of builders -- a clue that has predicted the direction of activity in the housing sector. Nor does the housing market exist in a vacuum. When homes are purchased, homeowners tend to buy durable goods and big ticket items as well: furniture, appliances, landscaping equipment, home care supplies, etc. Upward trends in those sectors are good for the economy as a whole, and bullish signs for the U.S. stock market.

The April NAHB report's jump comes a pleasant surprise. For investors, it further confirms the U.S. economic recovery; for potential home buyers, it provides hope for improving housing market conditions ahead.

Nevertheless, it's important to keep in mind that one month is not enough to declare a trend, and that the index is still at a very low level. Home builder confidence will need to increase for several quarters before economists and sector analysts can comfortably declare that the nation's worst housing slump since the Great Depression is over.