Builder confidence in the market for new single-family home sales rose by 2 points in July, the National Association of Home Builders said Monday, butthe confidence reading of 15 remained sharply below a level that wouldindicate optimism.

The NAHB/Wells Fargo Housing Market Index (HMI) for July offsets athree-point dip recorded in June, and marks the ninth time in 10 monthsduring which the index has held within the same three-point range. Anyreading below 50 indicates a negative outlook.

Two out of the three HMI component indices rebounded in July from declinesin the previous month. The component gauging current sales conditions rosetwo points to 15, returning to its May level; the component measuring salesexpectations in the next six months rose seven points to 22, where it stoodin April. The component gauging traffic of prospective buyers held even withJune at 12.

"We view the upward movement in the July HMI as a correction from anexceptionally weak number in June that was at least partly attributable tonegative economic news and the close of a disappointing spring sellingseason," said NAHB chief economist David Crowe. "The strong rebound in salesexpectations for the next six months likewise marks a return to trend.Basically, the market continues to bounce along the bottom, with conditionsin some locations beginning to improve."

Regionally, the HMI rose a point to 12 in the Midwest and three points inthe South and West, to 17 and 14, respectively. The index in the Northeastdropped two points to 15.

"The improvement in builder confidence in July is a positive sign that theoutlook perhaps isn't quite as bleak as was feared in June," said BobNielsen, a home builder from Reno, Nev. who is serving this year aschairman of NAHB . "While builders continue to confront serious challengeswith regard to competition from foreclosed properties that are priced belowreplacement cost, inaccurate appraisals of new homes, and a very restrictivelending environment for new home construction, select markets are showinggradual improvement as consumers begin to take advantage of very favorablebuying conditions."

Wall Street was expecting a reading of 14.

Michael Rehaut, home building analyst at J.P. Morgan, saw the reading as amodest positive. In a research note, he wrote, "We view this data point asconsistent with our outlook for housing demand to continue to demonstratestable to slightly improving trends. Moreover, we believe supply continuesto remain manageable, as existing homes for sale are 19% below peak levelsand foreclosures continue to liquidate at a moderate pace."

David Goldberg at UBS was less positive. In his note, he wrote, "Our channel checks indicate that recent sales activity has been slightly weaker than normal seasonal patterns suggest. As such, we expect builder sentiment to remain volatile over the near term reflecting conditions in the broader economy."

Adam Rudiger at Wells Fargo saw little to cheer about. "The modest increase in the July HMI was mostly driven by increased optimism towards future sales. We feel as though we have been down this road multiple times with the homebuilders over the last several years; after a disappointing recent sales period there is renewed optimism towards the future, which ultimately proves to be a false sense of hope. While we think it's likely we are bouncing around the bottom, and it is unlikely to see housing activity deteriorate significantly more, we do not view the improvement in this month's HMI as a meaningful positive data point for the homebuilders, particularly as the series remains at an extremely depressed level."