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Foreclosures will continue to flow onto the market and soften house prices increases but as employment improves pent up household formations will also generate new demand to offset some of the added supply.

NAHB/Wells Fargo Housing Market Index increased one point in November to 16 from a downwardly revised 15 in October. Over the two months since a cyclic low of 13 in September, the index has increased three points. 

The November level of 16 brings the index back to the level it was in June but still six points shy of the 2010 peak of 22 in May as the home buyer tax credit expired.

Of the three subcomponents in the index, the expectations for the next six months increased the most, from 18 in September to 25 in November, suggesting builders are expecting continued improvement after a summer and early fall depressed by the flagging economy. These are positive signs the economy may be finally recovering from the long recession.

The individual comments continue to express the lack of production credit and greater competition from foreclosures and short sales.  In fact, in a special question builders reported the most significant market impediment within the last six months is competition from foreclosures and short sales followed closely by costs greater than the price customers are willing to pay.

– Courtesy of NAHB