The Wall Street Journal

17 July  2012

U.S. home builders’ confidence took the biggest monthly jump in nearly a decade this month, another sign that a troubled part of the economy has become a source of strength.

The National Association of Home Builders said Tuesday its housing market index soared to 35 this month, the highest level since March 2007 and up six points from a month earlier. It was the largest monthly increase since September 2002.

The results highlight how the housing market, which has been one of the weakest parts of the economy in recent years during a historic bust, has now turned positive amid a tenuous economic recovery.

Spending on home construction, home improvements and other parts of real-estate transactions have added to economic growth for four straight quarters, accounting for 0.42 percentage points of the 1.9% growth rate in the first quarter.

The results were well above expectations. Economists polled by Dow Jones Newswires had forecast a reading of 30.

“This report adds to the growing acknowledgement that housing, though still in a fragile stage of recovery, is returning to its more traditional role of leading the economy out of recession,” said the group’s chief economist, David Crowe. “This is particularly encouraging at a time when other parts of the economy have begun to show softness.”

Despite the increase, the index was still well below historical levels. A reading above 50 in the NAHB index would mean that more builders view conditions as good rather than poor. The gauge hasn’t been in positive territory since April 2006. At the height of the building bubble, readings were in the high 60s and low 70s.

All three components of the index increased in July. Builders’ expectations for sales over the next six months rose by 11 points, while traffic from potential buyers and current sales conditions both increased by six points.

The index was based on a survey of 318 builders. Regionally, the index grew by 12 points in the West, eight points in the Northeast, five points in the South and three points in the Midwest.