The National Association of Home Builders/Wells Fargo builder sentiment index rose four points to 25 in January. That's the highest level since June 2007. It's just the third time the index has been at 20 or above in two years.
Still, any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.
Last year, the number of people who bought new homes fell to its lowest level on records going back nearly a half-century. The figure for 2011 will likely be below that level.
Builders are struggling to compete with foreclosures, which have forced down prices of previously occupied homes. And many buyers are finding it hard to qualify for loans or meet higher required down payments.
Low appraisals are scuttling some deals after contracts have been signed. As a result, some buyers who want to buy a new house are holding off because they can't sell their home.
Those in a position to buy are benefiting from lower prices and mortgage rates. The average rate on the 30-year fixed mortgage is at a record low 3.89 per cent. Yet those factors have done little to boost home sales.
David Crowe, the builder group's chief economist, pointed to some regional pockets of strength. New Orleans, Pittsburgh and other smaller areas, in particular, have reported increased buying.
New homes make up a small portion of housing sales. But they have an outsize impact on the economy. The builder trade group says each new home built creates an average of three jobs for a year and generates about $90,000 in taxes.
Sentiment about current single-family home sales rose three points to 25, according to a separate gauge in the survey. Builders are also more optimistic about future sales.
The outlook improved across the country, rising nine points in the Northeast, five points in the West, two points in the South and one point in the Midwest.