According to Bruce Smith, NAHB President, the December HMI rise is the largest monthly increase since 1998.

The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly two decades. Home builders are asked to rate current sales of single-family homes and sales expectations for the next six months and to rate traffic of prospective buyers.

Each of the HMI's three component indexes rose eight points in December. The index gauging current sales of single-family homes rose to 60 from the previous month's 52 reading, while the index for expected sales in the next six months rose to 64 from a previous 56. The index for traffic of prospective buyers rose to 46 from a previous 38.

While Smith acknowledged that home sales and production are still expected to decline somewhat in this year's final quarter and the beginning of next year, he said the solid market fundamentals that caused December's HMI gain are a good reason to believe that the slowdown will be relatively short-lived.