The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday increased to 40 in September. That's up from 37 in August and the highest reading since June 2006, just before the housing bubble burst.
Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached that level since April 2006, the peak of the housing boom.
Still, a measure of builders' outlook for sales in the next six months rose to 51. That's up from 43 in August and also the highest level since June 2006.
Builders also reported seeing the best sales level since July 2006. And turnout by prospective buyers returned to levels not seen since May 2006.
The positive trends have helped bolster optimism that the U.S. housing recovery will endure.
"We think things have turned around and this recovery is sustainable," said Patrick Newport, an economist with IHS Global Insight. The rise in builder confidence means that new-home construction is likely to increase over the next six months, Newport said.
The survey, which is based on responses from 445 builders, has been trending higher since October. After a dismal 2011, homebuilders have seen their fortunes begin to turn around this year as the housing recovery has steadily gained momentum.
Sales of both new and previously occupied homes are running ahead of last year. Home prices are increasing more consistently, in part because the supply of homes has shrunk and foreclosures have eased. And mortgage rates remain near record lows, beckoning potential buyers with good credit.
Still, the housing market remains depressed. While the turnaround will continue next year, a complete recovery in home construction isn't expected before 2016, Newport said.
The housing market isn't expected to recover fully until job growth improves and the unemployment rate, now at 8.1 percent, declines further.
Still, sales remain on the upswing at Taylor Morrison, which builds homes in five U.S. states and caters to entry-level and move-up buyers, as well as seniors.
The Scottsdale, Ariz.-based company's sales are up 40 percent from last year, said Graham Hughes, the builder's vice president of sales and marketing.
Hughes says the lower inventory of previously occupied homes for sale has helped drive stronger demand for new homes. Demand has been especially strong in markets like Phoenix, where the builder's sales are up 80 percent. That's made it possible for Taylor Morrison to hike prices there by an average of 15 percent.
Taylor Morrison expects to close out 2012 with 15 percent more employees than last year. It also anticipates boosting payrolls by another 10 percent next year.
"I'm definitely optimistic now," Hughes said. "We've turned the corner and we're at the bottom and starting to look up."
Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the NAHB's data.
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