updated 5/17/2010 2:23:39 PM ET 2010-05-17T18:23:39

U.S. homebuilders are growing more optimistic about their fortunes, with many expecting improved sales and customer traffic in coming months despite the end of homebuyer tax incentives.

The National Association of Home Builders said Monday its housing market index, which tracks industry confidence, rose three points this month to 22, the highest reading since August 2007.

Readings below 50 indicate negative sentiment about the market. The last time the index was above 50 was in April 2006.

Builders have seen sales and home orders improve this year thanks to low mortgage rates and two government tax credits — $8,000 for new buyers and $6,500 for current owners who who buy and move into another property.

The government incentives helped gin up home sales this spring as many buyers raced to purchase a home in time to qualify before they expired at the end of April.

Without the tax credits, however, many experts anticipate home sales will slow in the second half of this year. In addition, high unemployment and tight mortgage lending continue to keep many buyers on the sidelines.

Regardless, homebuilders polled in the May survey were hopeful the sales momentum will hold.

"Builders are more comfortable that the market is truly beginning to recover, and that positive factors for buying a new home — low interest rates, great selection, stabilizing prices and a recovering job market — are taking the place of tax incentives to generate buyer demand," said David Crowe, the trade association's chief economist.

Sales of new homes rose 27 percent in March, the biggest monthly increase in 47 years. Still, new home sales are down 70 percent from their peak in July 2005.

The latest index of builder sentiment bodes well for May sales, however.

The reading for current sales conditions jumped three points to 23. The index measuring foot traffic from prospective buyers also rose three points to 16, and the index for sales expectations over the next six months improved three points to 28. The report reflects a survey of 416 residential builders nationwide.

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