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Home builder confidence ends year on high note

New homes for sale at a housing development in Dublin, Calif., on Dec. 4, 2013.
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New homes for sale at a housing development in Dublin, Calif., on Dec. 4, 2013.

Confidence among U.S. home builders took a leap in December, as pent-up demand from the government shutdown drove more potential buyers to new model homes. A monthly sentiment index from the National Association of Home Builders (HMI) rose 4 points to the highest level since August.

"This is definitely an encouraging sign as we move into 2014," said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. "This indicates that an increasing number of builders have a positive view on where the industry is going."

The sentiment index has now been in the positive for seven-straight months. It had been falling since August, amid higher mortgage rates and concern over the government shutdown and the budget impasse. That may have caused potential buyers to pause and return to the market now. Some, however, say there is a bigger change afoot.

"I take issue with the NAHB's belief that higher rates hasn't deterred buyers, as the purchase component of weekly mortgage applications are near the lowest of the year, and as the [number] of first-time homebuyers still remain well below historical trends," said Peter Boockvar of The Lindsey Group. "What we are beginning to see are investors buying new homes who then in turn rent them out. We are in a secular change towards renting."

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Of the survey's three components, current sales conditions jumped 6 points, sales expectations over the next six months rose 2 points and buyer traffic gained 3 points. While improving, buyer traffic is the only component still showing negative sentiment.

Some, including noted analyst Ivy Zelman, have lowered their forecasts for both new home sales and housing starts for 2014, citing rising mortgage rates and too-high new home prices. Builders were forced to raise prices amid tight land, labor and supply conditions. Those prices, however, may start to moderate this spring.

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"The labor inflation was starting to hit us after the big sales season in the spring. You were starting to see price pressures. And then came the summer slowdown and those dissipated, and the whole subcontractor industry, that summer and fall slowdown gave them a chance to resize their organizations," said Steve Alloy, president of Stanley Martin Homes, a builder in the mid-Atlantic region. "The pressure they were under dissipated the bidding-up prices, so that little pause actually helped the industry get ready, because there is this big wave of housing coming."

Regionally, on a three-month running average, builder sentiment edged 1 point higher in the South but fell in the rest of the nation, down 1 point.

(Read more: More borrowers will struggle to pay off home equity loans)

UPDATED: This story was updated from its original version to include comments from Peter Boockvar of The Lindsey Group.

By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.

Questions? Comments? facebook.com/DianaOlickCNBC

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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