“Firming home values, improving employment, and low mortgage rates” are driving greater optimism over a recovery taking shape in the new-home market, says David Crowe, chief economist for the National Association of Home Builders. 

Builder confidence for the market of newly built single-family homes rose five points this month, posting its best reading since May of 2007, according to a measure of builder sentiment by NAHB/Wells Fargo. The index measures builder sentiment on sales conditions and expectations as well as buyer traffic. 

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” says Barry Rutenberg, NAHB chairman. “It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”

Still, housing experts warn the new-home market still has a long way to go toward normalizing, based on historical trends. Builders say consumer access to credit, inaccurate appraisals, and the rise in materials costs for new construction continue to pose major challenges to the industry. 

According to May’s index, the largest gains in builder confidence occurred in the Northeast, followed by Midwest and South. The West posted a two-point decline in builder sentiment for May, according to the index.