Home builders are becoming more optimistic about the future in large part because limited inventory means demand will increase for their new home products coming to market. That was evidenced in April by builder confidence climbing one point to 45, according to the National Association of Home Builders (NAHB/Wells Fargo Housing Market Index (HMI), a report released this week. 

Also, the number of builders needing to reduce home prices keeps declining, another reason to be cautiously optimistic, according to the HMI report.

NAHB Chairman Alicia Huey, also a Birmingham, Ala.. custom homebuilder and developer, offers more insight on the uptick. "For the fourth straight month, builder confidence has increased due to a lack of resale inventory despite elevated interest rates," she says, adding that more good news might be coming as declines in mortgage rates move down below 6%. This is especially important since one-third of housing inventory now comes from new construction, a big increase from the past when it was only a bit above 10%, explains her colleague, NAHB Chief Economist Robert Dietz. On the cautionary side, part of the increases may be due to homebuilders offering more sales incentives.