Homebuilder Confidence Soars to Highest Level in 10 Years Despite Falling Traffic; Unwarranted Optimism?

Yahoo Finance says Whoa! Homebuilders Feeling Happiest in 10 Years.

I am not sure they are the "happiest" in 10 years, but they are the most confident.

Sentiment jumped 3 points in October to a level of 64 on the National Association of Home Builders/Wells Fargo Housing Market Index. Anything above 50 is considered positive sentiment. The index stood at 54 last October.

"The fact that builder confidence has held in the 60s since June is proof that the single-family housing market is making lasting gains as more serious buyers come forward," said NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Missouri.

Of the index's three components, two saw gains in October.

Sales expectations in the next six months rose 7 points to 75, while current sales conditions rose 3 points to 70. Buyer traffic, however, didn't move, sitting at 47— the only component still in negative territory.

Unwarranted Optimism?

As with manufacturing six-month look-ahead expectations that have been ridiculously overoptimistic for at least a year, I suspect the same thing applies to home builders.

The one stat that matters most, prospective buyer traffic, is actually negative. So why the optimism?

Are builders are simply trying to hype up the price of their stocks?

Mike "Mish" Shedlock