U.S. home builders are not feeling any better about their business this month, but they're not feeling any worse either. A monthly sentiment index from the National Association of Home Builders was unchanged in September, holding at a reading of 58. Fifty is the line between positive and negative.
"While builder confidence is holding at the highest level in nearly eight years, many are reporting some hesitancy on the part of buyers due to the sharp increase in interest rates," said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. "Home buyers are adjusting to the fact that, while mortgage rates are still quite favorable on a historic basis, the record lows are probably a thing of the past."
Of the index's three components, current sales conditions were unchanged, sales expectations over the next six months fell 3 points and buyer traffic rose 1 point. The overall index is still well above where it was just a year ago, but sales are not as robust as had been expected, and buyer traffic is still in the negative.
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"With today's elevated vacancy rates and slow household formation, construction activity won't return to normal quickly," said Jed Kolko, chief economist at Trulia, an online real estate company.
Kolko pointed to the nation's 10.3 percent vacancy rate, which is well above the prebubble level of 8.9 percent in 2000. Household formation was running at 746,000 annually in the second quarter of this year, but it has only averaged 560,000 since 2007, about half the normal level historically, according to the U.S. Census.
"The U.S. has a for-sale inventory shortage, but not a housing shortage," Kolko added.
Home builders continue to be hampered not only by lackluster demand but by, "tight credit, shrinking supplies of lots for development and increasing labor costs," according to David Crowe, NAHB's chief economist. None of those are expected to ease any time soon.
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There is certainly plenty of pent-up demand, especially among younger, first-time home buyers, but many of them are still struggling in today's job market, either unable to find steady work or not earning enough to afford today's higher down payment demands by lenders.
"Mortgage rates have increased more than 100 basis points since early May, and we anticipate that trend to continue, albeit gradually, during the next year," Doug Duncan, Fannie Mae's chief economist, said in a report Tuesday. He also expects economic growth to slow from the, "surprising" pace seen last quarter.
Regionally, home builder confidence increased the most in the Midwest and West and more moderately in the Northeast and South. Housing starts and building permit numbers for August will be released by the Commerce Department on Wednesday.
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—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.