Homebuilders are bullish this month, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Builder confidence in the market for newly built, single-family homes rose 12% to 46 for November, solidifying a seven-month increase streak and boosting the index to its highest reading since May 2006. 

Source: Author, data from NAHB/Wells Fargo Housing Market Index

"Builders are reporting increasing demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country," said NAHB Chairman Barry Rutenberg. "In view of the tightening supply and other improving conditions, many potential buyers who were on the fence are now motivated to move forward with a purchase in order to take advantage of today's favorable prices and interest rates."

Current and expected sales conditions pushed the index upward, while prospective buyer traffic remained unchanged. 

While this month's results (accompanied by a rise in existing home sales ) are positive signs, the homebuilders' index has yet to cross above 50, which would mean optimism outweighs pessimism. However, Chief Economist David Crowe is quick to point out that great strides have been made since last November's reading of 19.

"At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets," said Crowe in a press release.