The National Association of Home Builders said Wednesday its housing market index rose in September for the third month in a row, reflecting growing optimism in the industry about rising home sales.
The trade association said its index rose one point to 19, its highest reading since it hit 20 in April last year.
Index readings below 50 indicate negative sentiment about the market. The last time it was above 50 was in April 2006.
The latest NAHB index reflects a survey of 533 residential developers nationwide.
The reading for current sales conditions rose two points to 18. Traffic by prospective buyers rose one point to 17. The sales expectations index over the next six months fell one point to 29.
Builders' stocks jumped Wednesday afternoon following the release of the report. Shares of Beazer Homes USAbzh and Hovnanian Enterpriseshov, were each up about 10% to lead the sector.
Despite job losses and other impacts from the recession, new-home sales have risen for four months in a row, and prices have edged up for the past two months. Financial results for home builders were also better than expected in the latest quarter.
Sales have been buoyed by a federal tax credit that covers 10% of a home price up to $8,000 for first-time buyers, but it is set to expire at the end of November.
That, coupled with tight lending standards for borrowers and builders could threaten the real estate recovery, said David Crowe, the trade group's chief economist.
"These concerns need to be addressed if we are to embark on a sustained housing recovery that will help bolster economic growth," Crowe said.
The trade group is lobbying Congress to extend the tax credit for another year and to offer it to all buyers.
Still, builders are clearly expecting sales to improve further. Some have rolled back incentives and even raised some of their home prices. Others are buying land again.
On Wednesday, KB Home said it has started building homes again in the Mid-Atlantic region, notably in Washington, D.C. The Los Angeles-based builder had pulled back in some weak markets in late 2007 to conserve cash, cut costs and lower inventory.