Builder confidence in the market for newly built, single-family homes rose four points to 18 on the NAHB/Wells Fargo Housing Market Index (HMI) for October, which was released on Oct. 18.

This is the largest one-month gain the index has seen since the home buyer tax credit program helped spur the market in April of 2010.

"Builder confidence regained some ground in October due to modest improvements in buyer interest in select markets where economic recovery is starting to take hold and where foreclosure activity has remained comparatively subdued," said NAHB Chairman Bob Nielsen.

However, he said, confidence was still running quite low, with builders continuing to confront overly restrictive lending policies both for new construction and home buying, problems with new-home appraisals and widespread uncertainty regarding federal support for homeownership.

"This latest boost in builder confidence is a good sign that some pockets of recovery are starting to emerge across the country as extremely favorable interest rates and prices catch consumers' attention," said NAHB Chief Economist David Crowe.

"However, it's worth noting that while some builders have shifted their assessment of market conditions from 'poor' to 'fair,' relatively few have shifted their assessments from 'fair' to 'good,’” he said.

“One reason is that builders are facing downward pricing pressures from foreclosed homes at the same time that building materials costs are rising, and this is further squeezing already tight margins."

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales, sales expectations for the next six months and prospective traffic.

Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Each of the HMI's three component indexes recorded substantial gains in October.

The component gauging current sales conditions rose four points to 18, sales expectations in the next six months rose seven points to 24, and traffic of prospective buyers rose three points to 14.

Regionally, the West led all other areas of the country with its nine-point gain to 21 — the highest HMI score for that region since August of 2007.

The Midwest and South each recorded four-point gains, to 15 and 19, respectively, while the Northeast held unchanged at 15.

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