Optimism among the nation's homebuilders continues to build as confidence in the market for newly constructed single-family homes continued its steady rise in September with a one point increase to a level of 62 on the National Association of Home Builders/Wells Fargo Housing Market Index.

As with last month when it hit 61, this new reading is the highest since November 2005.

The best news in the report comes from the weakest component, traffic which is up 2 points to 47. This suggests that high rental prices may be pushing potential first-time buyers into the market.

"The HMI shows that single-family housing is making solid progress, said NAHB Chairman Tom Woods, a home builder from Blue Springs, Missouri. "However, our members continue to tell us that they are concerned about the availability of lots and labor.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

"NAHB is projecting about 1.1 million total housing starts this year,” said NAHB Chief Economist David Crowe. “Today's report is consistent with our forecast, and barring any unexpected jolts, we expect housing to keep moving forward at a steady, modest rate through the end of the year.”

Two of the three HMI components posted gains in September. The index measuring buyer traffic increased two points to 47, and the component gauging current sales conditions rose one point to 67. Meanwhile, the index charting sales expectations in the next six months dropped from 70 to 68.

Looking at the three-month moving averages for regional HMI scores, the West and Midwest each rose one point to 64 and 59, respectively. The South posted a one-point gain to 64 and the Northeast dropped one point to 46.

The housing market index, a measure of homebuilder sentiment, has been very strong this year, reflecting low supply in the new housing market.