Builders’ confidence in the market for new single-family homes dropped, as the National Association of Home Builders' (NAHB) housing market index - a monthly gauge of builder sentiment – grew to 15 in July from 13 in June.

Thomson Reuters' poll of economists predicted a level of 14.

“The improvement in builder confidence in July is a positive sign that the outlook perhaps isn’t quite as bleak as was feared in June,” said NAHB Chairman Bob Nielsen. “While builders continue to confront serious challenges with regard to competition from foreclosed properties that are priced below replacement cost, inaccurate appraisals of new homes, and a very restrictive lending environment for new home construction, select markets are showing gradual improvement as consumers begin to take advantage of very favorable buying conditions.”

“We view the upward movement in the July HMI as a correction from an exceptionally weak number in June that was at least partly attributable to negative economic news and the close of a disappointing spring selling season,” NAHB Chief Economist David Crowe said. “The strong rebound in sales expectations for the next six months likewise marks a return to trend. Basically, the market continues to bounce along the bottom, with conditions in some locations beginning to improve.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

Two of the three component indexes rose in July. The current single-family home sales index climbed to 15 from 13, and the sales expectations index for the next six months jumped to 22 from 15. The traffic of prospective buyers index held at 12.

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