24/7 Wall St.

The National Association of Home Builders/Wells Fargo housing market index increased to a seasonally adjusted reading of 40 in September. That was up from 37 in the previous month, as well as the highest the reading since June 2006. Economists surveyed by MarketWatch and by Bloomberg had each expected a reading of 38.

A number over 50 indicates that more builders view sales conditions as good than poor.

All three components of the index showed gains. Present sales grew 4 points to 42, sales for the next six months rose 8 points to 51, and traffic of prospective buyers was just 1 point higher to 31. Gains were also seen in all regions, especially the Northeast, which saw a 9-point increase.

“Builders across the country are expressing a more positive outlook on current sales conditions, future sales prospects and the amount of consumer traffic they are seeing through model homes than they have in more than five years,” said David Crowe, NAHB’s chief economist. “However, against the improving demand for new homes, concerns are now rising about the lack of building lots in certain markets and the rising cost of building materials. Given the fragile nature of the housing and economic recovery, these are significant red flags.”

The full release is available here.