Great Expectations
All of those new home sales are encouraging home builders to take a favorable view of the current housing climate. July's National Association of Home Builders/Wells Fargo Housing Market Index saw an increase of six points. At 57, this is the highest the index has posted since January 2006. In addition, builder confidence rose in every region across the country, from an eight-point gain in the Midwest to a three-point gain in the West.

Eager Buyers
One factor in driving builder confidence upwards has been an increase in the number of motivated buyers. Builders expect the rise in traffic to continue; the index saw gains in builders' sales expectations for the next six months. What's driving so many buyers to the new home sales centers? Stabilizing home prices and positive growth forecasts for many local economies are encouraging new home buyers to start signing contracts. The lack of housing inventory in many markets is also adding to the sales boon.

Low New Home Inventory
As of June, 161,000 units were available for sale. At the current sales pace, this supply will run out after only 3.9 months. The new home housing supply hasn't been this low since March 2004. The shrinking inventory of new homes shows that home builders are having a hard time matching the high demand from buyers. According to the National Association of Home Builders (NAHB), materials, labor, and available building lots are all in short supply. Add to that a lack of credit available to home builders, and an inventory shortfall is bound to follow.