The housing market index, unchanged in July at 60, is signaling substantial strength for the new home market. This is the strongest reading since November 2005, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Thursday.

Last month’s reading was revised up one point, moving from 59 to 60, which was the highest reading since September 2014.

Future sales, at 71, lead the report with present sales right behind at 66. Still lagging is traffic, down 1 point in the month to 43 and reflecting a lack of first-time buyers in the market.

All regions are showing growth led by the West at a composite 63 followed by the South at 62. The Midwest is at 59 and the Northeast, which had been under 50 for a long run, is now at 52.

“The fact that builder confidence has returned to levels not seen since 2005 shows that housing continues to improve at a steady pace,” said NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Missouri. “As we head into the second half of 2015, we should expect a continued recovery of the housing market.”

The new home market is accelerating and is in place to be the best surprise of the 2015 economy. Housing starts and permit data, which have been volatile but very strong, will be posted tomorrow.

“This month’s reading is in line with recent data showing stronger sales in both the new and existing home markets as well as continued job growth,” said NAHB Chief Economist David Crowe. “However, builders still face a number of challenges, including shortages of lots and labor.”

David Berson, Nationwide’s chief economist, commented on the report saying, “Overall, the HMI suggests that new home sales will continue to rise in the next few months.  This is reinforced by the ‘present sales’ component of the index, which rose to a strong level of 66, and the ‘next six months’ expectations component, which climbed to 71.”

“New home sales, while moving upward, continue to lag behind the peaks of prior expansions -- and not just the expansion during the housing bubble, which was never sustainable and was fueled by unwise lending standards. Today's MHI suggests that new home sales will continue to move upward in the near-term -- and there is lots of room for sales to climb based on the economy (jobs) and demographics (household formations),” Berson added.