Confidence among U.S. homebuilders is swelling to a five-year high, with many now anticipating that sales of new homes will strengthen this year even as signs point to a slowing economy.
The National Association of Home Builders/Wells Fargo builder sentiment index surged six points this month to 35, the highest reading since March 2007, the trade association said Tuesday.
The index, which is based on responses from 318 builders, rose from a reading of 29 last month, marking the largest one-month gain in nearly a decade. It has declined only once between January and July.
Any reading below 50 indicates negative sentiment about the housing market. And the index hasn't reached that level since April 2006, the peak of the housing boom.
Even so, the latest builder survey reflects growing optimism among builders that new home sales are on an upswing again after hitting the lowest point in a half century last year.
In July, builders say they observed the best sales levels since February 2007. Their outlook for sales in the next six months also brightened to the highest level since March 2007. Turnout by prospective buyers also returned to a level not seen in five years.
Cheaper mortgages and lower home prices in many markets have made home buying more attractive. Many economists believe that housing construction could contribute to overall economic growth this year for the first time since 2005.
Americans bought new homes in May at the fastest pace since April 2010, according to the Commerce Department.
Even with the gains, sales were only at a seasonally adjusted annual rate of 369,000 homes — a pace that remains less than half the 700,000 that would be considered normal.
Still, builders have responded to the increased demand by ramping up construction on more single-family homes. In May, homebuilders requested the most permits to start projects in 3 1/2 years.
And yet, the rate of construction and the level of permits requested remain roughly half the pace considered healthy.
Many Americans are still having difficulty qualifying for home loans or can't afford larger down payments required by banks. Some would-be home buyers are holding off because they fear that home prices could keep falling.
The economy added only 80,000 jobs in June. It was the third consecutive month of weak job growth.
From April through June, the economy produced an average of just 75,000 jobs a month, the weakest three months since August through October 2010.
Patrick Newport, an economist at IHS Global Insight, said that builders' positive outlook on sales this year isn't at odds with the sharp slowdown in job gains in recent months.
"As long as we're adding jobs, I think the housing market is going to continue to improve," Newport said, noting that employers have continued to add jobs, just at a slower pace than earlier in the year.
Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to Home Builders' data.