The National Association of Home Builders (NAHB)/Wells Fargo housing market index rose by 3 points from a downwardly revised 41 in April to 44 in May. A January reading of 47 was 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 below an expected reading of 46.

Sub-indexes that measure current sales conditions and sales expectations came in at 48 and 53 in May. The sub-index that estimates traffic of prospective buyers rose 3 points, to 33. The reading for sales expectations is the highest since February 2007.

The NAHB’s chairman noted:

Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies. This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots and labor.

As in April, the NAHB notes that it will take time for the supply chain that eroded during the housing bust to recover. But the builders are taking hope from the improvement in current sales conditions and expectations continue to rise.

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