AP Home builder confidence in the market for new single-family homes rose to its highest level in more than four years in February, according to a new survey released on Wednesday.

Home builders are more confident about their market today than they have been in over four years.

Buyer traffic, current sales, and sales expectation are all improving, at least according to the latest sentiment index from the National Association of Home Builders. The index has in fact doubled since September, despite the fact that it is still well below the line between positive and negative.

Despite this being the fifth straight month of improvements, the NAHB’s chief economist is being very cautious:

“It is important to remember that the HMI is still very low, and several factors continue to constrain the market. Foreclosures are still competing with new home sales, and many builders are seeing appraisals come in at less than the cost of construction. Additionally, prospective home buyers are finding it difficult to qualify for a mortgage,” writes David Crowe in a news release.

He has reason to be cautious.

Witness today’s report on weekly mortgage applications. Refinances are still running high, thanks in part to a new government program that allows underwater borrowers (those who owe more on their loans than their homes are currently worth) with Fannie Mae and Freddie Mac mortgages to refinance to today’s historically low interest rates. Mortgage applications to purchase a home, however, are dropping, down 8.4 percent in just the last week (seasonally adjusted), but down nearly 8 percent (NSA) from a year ago. The four week moving average on purchase applications is also down nearly 4 percent. Not a good sign heading into the Spring season, as mortgage applications are a forward indicator of future sale closings.

Builder bulls might point to the fact that inventories of single family homes have been dropping precipitously, down 21 percent from a year ago, but that may not in fact be a good sign, according to analyst and appraiser Jonathan Miller. He notes that while listing inventory fell sharply, single family home sales were up just 1.4 percent annually, so “Inventory was clearly not declining because sales were overpowering the amount of listing inventory that was available.”

Instead, Miller points to a fall in seller confidence and a sharp decline in distressed inventory entering the market. Unless sellers absolutely have to move, they are not listing their homes for fear of getting the bottom of the market. On top of that, the so-called “robo-signing” foreclosure paperwork mess stalled a huge number of foreclosures in the pipeline, dropping the number of bank owned homes coming to market. Sources also tell me that as investor demand has increased recently, thanks to rising rents, banks have been metering out their foreclosures, attempting to keep the market tight, so they can demand a better price. Investors are telling me that in some markets, especially out in California, they are actually getting into bidding wars over foreclosures, as supply dwindles.

So do the home builders have reason for optimism?

Think about it this way: There are far fewer home builders now than there were during the housing boom. Those that are left are the big publics, who have lots of cash and are eating up market share, and local builders in markets where they have been able to survive. Those who were knocked out of the market are likely no longer surveyed in the index.

Aside from that, we are heading into spring, which is traditionally the busiest season for home buying. With the jobs picture improving slowly, there is no doubt potential buyers are coming out to kick the tires. But let’s keep all this in perspective. Nearly 12 million potential move-up buyers can’t sell their homes because they are in a negative equity position. That leaves first time home buyers as the biggest market for the builders. First time home buyers may not have large enough down payments to qualify for today’s tight mortgage market. Mortgage delinquencies are rising and the foreclosure pipeline, thanks to the recent government settlement, may start to move faster, dumping more properties onto the market. I’m waiting for spring. Then we’ll see if all this new optimism is warranted.

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