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Home builder confidence hits highest level since 2005

Hope for a stronger housing recovery is surging among the nation's home builders. A monthly index of sentiment in the industry rose for the fourth straight month in September to the highest reading since November 2005.

The National Association of Home Builders/Wells Fargo Housing Market Index jumped 4 points to 59. Anything above 50 is considered positive sentiment. The index had been as low as 45 just four months ago.

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"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, a home builder and developer from Wilmington, Delaware.

Workers install a paved driveway at the Toll Brothers' Jupiter Country Club housing development in Jupiter, Fla.
Mark Elias | Bloomberg | Getty Images
Workers install a paved driveway at the Toll Brothers' Jupiter Country Club housing development in Jupiter, Fla.

Of the three components making up the housing market index, current sales conditions and traffic of prospective buyers each rose 5 points to 63 and 47, respectively. The index gauging expectations for future sales increased 2 points to 67.

Buyer traffic, however, is not uniform. Younger buyers continue to be sidelined from the housing recovery, still struggling under weak job and wage growth. Young Americans are renting at a higher rate than ever, and as rents rise, they are less able to save for a down payment on a mortgage. Applications for a mortgage to buy a home are running 10 percent below where they were one year ago, when rates were lower.

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"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 millennials and first-time homebuyers," said the NAHB's chief economist, David Crowe. "Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor."

Results from the largest publicly traded home builders have also been mixed. Miami-based Lennar reported Wednesday better-than-expected earnings for its third quarter. Orders rose 23 percent from a year ago, but the company also benefited from its play in the multifamily rental business. Pennsylvania-based Toll Brothers, a higher-end home builder, disappointed in its latest quarterly earnings report.

Regionally, builder confidence was highest in the Midwest and lowest in the Northeast, but all regions posted gains.

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—By CNBC's Diana Olick