NAHB's Housing Market Index, a gauge of builder confidence in the market for newly built, single-family homes, rose four points in the group's latest reading to 59, nine points above the benchmark separating a market largely viewed as good from one viewed as poor.
September's gain brings the index to its highest value since November 2005, NAHB reported.
"Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction," said NAHB Chairman Kevin Kelly.
All three index components saw improvement in September, with the index of future sales expectations leading the others at a reading of 67. Meanwhile, the present sales index picked up five points to 63.
Trailing the other indices is NAHB's gauge of prospective buyer traffic, which remains below the neutral line at 47.
The continued rise in builder sentiment could bode well for single-family housing construction, which was up 8.3 percent in July to an adjusted annualized rate of 656,000.
Growth in that segment is still lagging compared to the multifamily market, however, which saw a 33 percent jump in starts in July.
NAHB Chief Economist David Crowe explained that despite their optimism, homebuilders nationwide remain constrained by a number of hurdles.
"While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time home buyers," Crowe said. "Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor."