In January, for the fourth month in a row, builders reported improved confidence about the market for newly built, single-family homes, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The index rose four points to a reading of 25 for the month, bringing it to the highest level seen since June 2007. (The index requires a reading of more than 50 to indicate that a majority of builders see conditions as "good" rather than "poor.")

The NAHB attributed the improvement to strengthening employment numbers and a rise in consumer confidence, which, in January, reported a fifth consecutive month of improvements, according to the Reuters/Michigan Consumer Sentiment Index.

Builders aren’t the only ones feeling more optimistic. "We believe this reflects our view that conditions in the housing market have bottomed and that a gradual recovery is starting to unfold," wrote David Goldberg, vice president of investments at the U.S. division of international financial services firm UBS, in a release regarding the numbers. "Further, our channel checks continue to suggest that demand trends have been outperforming normal seasonal patterns."

David Crowe, the NAHB’s chief economist, hedged the good news, however, with warnings of the continued challenges builders face. "Caution remains the word of the day as many builders continue to voice concerns about potential clients being unable to qualify for an affordable mortgage, appraisals coming through below construction cost, and the continuing flow of foreclosed properties hitting the market," he wrote in the NAHB’s release regarding the numbers.

Each of the HMI’s three components gained three points for the month, bringing the measure of current sales conditions to a reading of 25, the component gauging sales expectations for the next six months to 29, and the component measuring prospective-buyer traffic to 21.

Each of the country’s four regions shared in the improved outlook, though the strongest lift came from the Northeast, which was up nine points to a reading of 23; the Midwest gained one point to a reading of 24; the South improved by two points to 27; and the West was up five points to 21.

Claire Easley is a senior editor at Builder.