The evidence is beginning to mount that the housing market has stabilized and is improving. While 2011 was the worst year for new single-family construction since World War II, a ray of sunshine erupted in the last quarter that is giving the industry hope that the market has started a climb out of the depths of depression.

There is concrete evidence of improvement in the fourth quarter sales orders reports from the 12 public home builders who have filed their numbers. Every one reported better sales in their fourth quarter. The numbers varied from a barely improved 0.8% from M.D.C. Holdings to a whopping 41.8% for Standard Pacific Homes, but they were all in the positive range.

The Census reported single-family starts were up to 470,000 in December, the highest number for all of 2011 and since the tax-credit's temporary boost. “With the federal home buyer tax credit out of the way, we believe demand has stabilized and is finally painting a truer picture of conditions,” said Adam Rudiger, an analyst with Wells Fargo, in the bank's "The Construction Paper."

And builders are showing some more optimism. The NAHB/Wells Fargo Housing Market Index, which tracks home builder sentiment, has risen sharply since September, from a 14 to a 22. Though granted that’s still low, with the majority of builders being still soured on the market, it’s moving quickly in the right direction.

“The last time this indicator showed a similar correction was in the Spring of 2010 when actual activity improved due to the federal home buyer tax credit, suggesting that it can be a reliable indicator of field conditions,” wrote Rudiger.

Public Builders' Fourth Quarter 2011 Sales Orders
Beazer Homes USA 30.9%
D.R. Horton 12.8%
Hovnanian Enterprises 3.2%
KB Home 37.7%
Lennar Corp. 20%
M.D.C. Holdings 0.8%
Meritage Homes Corp. 5%
M/I Homes 9.7%
NVR 22.3%
PulteGroup 1.3%
The Ryland Group 17.9%
Standard Pacific Homes 41.8%

There was also plenty of anecdotal evidence at the International Builders' Show in Orlando last week that many people in the industry think that market improvement is afoot. There were more smiles and more bounce in the steps of even the weary trade floor walkers.

Then there were the show’s educational sessions, where presenters were starting to talk about the challenges that an improving market might bring. “The Builder’s Prayer is Answered--So Let’s Make Sure We’re Prepared for Success,” was the title of one session.

“In 2012 the markets will begin moving toward a steady recovery … but we need to be prepared to maximize our success,” the session description added.

There are still plenty of challenges. Fighting buyer worries and finding them mortgages remain a constant problem for home sellers. And, while sales orders were up for the publicly held home builders, many were still challenged to turn a profit and margins remained thin for most.

But the sales have to happen before the profits can begin to rebound and sales prices can begin to stabilize and then rise, which will help stave the valuation write-downs that continue to be a drag on public builders’ bottom lines.

Kent Colton, president of The Colton Housing Group, a housing research and consulting company and a senior fellow at the Harvard Joint Center for Housing Studies, felt the new sense of optimism at the builders' show.

“There is a sense that it has really stabilized and now we are seeing some positive signs,” he said. “It’s there.”

Teresa Burney is a senior editor for Builder magazine.