WASHINGTON — Builder confidence in the market for new single-family homes rose six points to 57 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) for July. This is the index’s third consecutive monthly gain and its strongest reading since January 2006.

Rick Judson, NAHB chairman, said that this new report “is particularly encouraging in that it shows improvement in builder confidence across every region as well as solid gains in current sales conditions, traffic of prospective buyers, and sales expectations for the next six months.” However, he cautioned, “This positive momentum could be disrupted by threats on the policy side, particularly with regard to the mortgage interest deduction and federal support for the housing finance system.”

“Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” said David Crowe, NAHB chief economist. “Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”

Derived from a monthly survey that NAHB has been conducting for 25 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 from 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.