Builder confidence in the single-family home market rose for a fifth straight month in September to its highest reading since June 2006.

The National Association of Home Builders/Wells Fargo Housing Market Index rose three points in the month to 40. Although confidence among builders is growing, any number below 50 indicates that more builders view sales conditions as poor than good.

Housing economist expected a one-point increase to 38, with a range of 35 to 40, according to Econoday.

“Builders across the country are expressing a more positive outlook on current sales conditions, future sales prospects and the amount of consumer traffic they are seeing through model homes than they have in more than five years,” noted NAHB Chief Economist David Crowe.

All three components used in the index posted gains in September. The component gauging current sales conditions increased four points to 42, and confidence in sales prospects in the next six months rose eight points to 51. The component measuring traffic of prospective buyers edged up one point to 31.

Builder confidence also rose across every region of the country in September. Examining the three-month moving average for each region, the Midwest and West each registered five-point gains, to 40 and 43, respectively, while the South posted a four-point gain to 36 and the Northeast posted a two-point gain to 30.

However, against the improving demand for new homes, Crowe warns that concerns are rising about the lack of building lots in certain markets and the rising cost of building materials.

“Given the fragile nature of the housing and economic recovery, these are significant red flags,” Crowe said.