RISMEDIA, Jan. 19, 2007-(MarketWatch)-U.S. home builders are slightly more optimistic about the housing market and are "starting to see that the worst is behind them," the National Association of Home Builders reported Wednesday.
The NAHB/Wells Fargo housing market index improved to 35 in January from an upwardly revised 33 in December. It's the highest level for the sentiment index since July. A year ago, the index was at 57. The index bottomed at 30 in September.
The index shows that roughly one-third of builders are upbeat about the market. A reading over 50% would indicate that most builders were optimistic that the market is improving.
"There remains a deep-seated pessimism on the part of home builders, a pessimism which is far greater than the fundamental data on starts and sales," wrote Joshua Shapiro, chief economist for MFR, in an e-mail.
"Despite analysts' desire to announce the bottom in the market, the results are more indicative that there will only be a temporary upswing in activity,' wrote Patrick McPherron, an economist for Moody's Economy.com, on their Web site.
The index is created by asking builders three questions: How are sales? How is buyer traffic? And how do you expect sales to be in six months?
The index for current sales rose to 36 from 33, the index for buyer traffic rose to 26 from 23, and the index for expected sales was unchanged at 49.
Over time, movements in the index are correlated with building permits and housing starts. The government will report on December starts and permits on Thursday.
Economists expect small declines for both starts and permits. In the past year, starts are down about 25%, while permits have fallen 10 months in a row and are down 31% in the past year.
"Builders are starting to see that the worst is behind them and that buying conditions have improved to the point that greater optimism is warranted," said David Seiders, chief economist for the builders' industry trade group, in a press release.
Seiders said the improvement in the index reflects lower mortgage rates since mid-year, lower energy prices, and solid growth in jobs and incomes.
"Reductions in home prices and widespread sales incentives offered by builders also have helped resuscitate buyer demand," the NAHB said.
For instance, one major builder, Lennar Corp., said Wednesday that sales incentives offered to homebuyers averaged $47,300 per home in the fourth quarter, up from $10,600 the previous year.
Builders in three of four regions were more optimistic in January compared with December, but attitudes among builders in the West remained at the lowest levels in several years at 32.
Builders in the South were the most upbeat, with an index of 41.
Rex Nutting is Washington bureau chief of MarketWatch.