Builder confidence in the market for newly built single-family homes spiked 14 points to 72 in July, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released Thursday. The HMI now stands at the pre-pandemic reading it posted in March, before much of the nation felt the impact of the COVID-19 outbreak.

“Builders are seeing strong traffic and lots of interest in new construction as existing home inventory remains lean,” said NAHB Chairman Chuck Fowke. “Moreover, builders in the Northeast and Midwest are benefiting from demand that was sidelined during lockdowns in the spring. Low interest rates are also fueling demand, and we expect housing to lead an overall economic recovery.”

Despite the jump in builder confidence, NAHB Chief Economist Robert Dietz urged caution.

“While the housing market is clearly rebounding, challenges exist,” Dietz said. “Lumber rpices are at a two-year high, and builders are reporting risking costs for other building materials while lot and skilled labor availability issues persist. Nonetheless, the important story of the changing geography of housing demand is benefiting new construction. New home demand is improving in lower-density markets, including small metro areas, rural markets and large metro exurbs, as people seek out larger homes and anticipate more flexibility for telework in the years ahead. Flight to the suburbs is real.”

The NAHB/Wells Fargo HMI is derived from a monthly survey that the NAHB has been conducting for 30 years. Any score over 50 indicates that more builders view conditions as good than poor.

All HMI indices posted gains this month. The index gauging current sales conditions rose 16 points to 79. The component measuring sales expectations for the next six montghs rose seven points to 75. The component measuring traffic of prospective buyers posted a 15-point spike to 58.

All regions also showed an increase in builder confidence. The regional HMI score for the Northeast shot up 22 points to 70. The Midwest jumped 18 points to 68. The South rose 10 points to 73, and the West rose 14 points to 80.