The National Association of Home Builders/Wells Fargo builder sentiment index released Wednesday rose to 44 in May from 41 in April. The increase for May was the first month-to-month gain since December.
Measures of interest by prospective buyers and current sales conditions also improved from April's reading.
Readings below 50 suggest negative sentiment about the housing market. The last time the index was at 50 or higher was in April 2006.
Concerns over rising costs for land, building materials and labor dimmed builders' confidence in recent months. April's reading, which was revised one point lower this month, marked the lowest confidence level since October.
Until December, the index had been steadily trending higher going back to October 2011, when it was 17. Overall, though, it remains well above the January 2009 low of 8, adding to mounting evidence of a sustained housing recovery.
Homebuilders are benefiting from a sustained rebound in housing that began a year ago, powered by steady job growth, rock-bottom mortgage rates, rising home values and a decline in the number of homes foreclosures.
New-home sales rose 1.5 percent in March to a seasonally adjusted annual rate of 417,000, according to the Commerce Department. While still below the 700,000 pace considered healthy by most economists, March's new-home sales pace was up 18.5 percent from a year earlier.
Sales of previously occupied homes were up 10.3 percent. And for the first time in five years, homebuilders started work on more than 1 million homes in March at a seasonally adjusted annual rate.
Several major homebuilders have reported strong annual increases in new home orders for the first three months of the year, which includes the start of the spring home-selling season, the traditional peak period for home sales.
One builder, Ryland Group Inc., said Tuesday that new home orders in April jumped 59 percent from a year earlier. The builder, based in Westlake Village, Calif., saw home orders grow 54 percent in the first quarter.
"Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies," Rick Judson, the NAHB's chairman, said in a statement.
The latest builder confidence index, based on responses from 290 builders, reflects the healthier sales trends many homebuilders are enjoying.
A gauge of current sales conditions rose four points to 48, the highest level since March, while a measure of traffic by prospective buyers improved three points to 33.
Builders' outlook for sales over the next six months rose one point to 53, the highest reading since February 2007.
Even so, homebuilders continue to grapple with the legacy of the housing downturn.
During the roughly six years since the housing bubble burst, some 1.4 million residential construction jobs vanished, while land development -- when raw land is prepared for home construction -- slowed sharply.
In addition, suppliers of building materials sharply reduced their stockpiles and have been slow in adjusting to the resurgent demand for lumber and other goods.
That translates to higher construction costs and heated competition for ready-to-build land. Many builders also are paying more for labor, because many of the subcontractor firms that builders rely on are scrambling to find experienced workers, many of which have long since moved on to other types of jobs.
In addition, many smaller builders also are having a difficult time getting loans to buy land.
Though new homes represent only a fraction of the housing 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 NAHB statistics.
Our new comment system is not supported in IE 7. Please upgrade your browser here.