The National Association of Home Builders (NAHB)/Wells Fargo housing market index rose by eight points from 42 in May to 50 in June. A January reading of 47 had been the highest for the index since April 2006. An index reading below 50 indicates that more builders view sales conditions as poor than view them as good. The reading was sharply higher than expected reading of 45.

The eight-point jump in the index is the largest one-month gain in more than 10 years.

Subindexes that measure current sales conditions and sales expectations came in at 56 and 61 in May. The subindex that estimates prospective buyer traffic rose seven points to 40. The reading for sales expectations is the highest since March 2006.

The NAHB’s chief economist noted:

Builders are experiencing some relief in the headwinds that are holding back a more robust recovery. Today’s report is consistent with our forecast for a 29 percent increase in total housing starts this year, which would mark the first time since 2007 that starts have topped the 1 million mark.

The index hike to its highest level in seven years bodes well for home builders and for new home buyers. Inventories of homes for sale are very low right now, which drives up prices for buyers. More building will moderate the price increases, even as new home builders will be able to increase their selling prices.

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