July 16 (Bloomberg) -- Confidence among U.S. homebuilders rose this month to the highest since September as sales of single-family units increased and more prospective buyers expressed interest.

The National Association of Home Builders/Wells Fargo index of builder confidence gained to 17 this month from 15 in June, the Washington-based NAHB said today. A reading below 50 means most respondents view conditions as poor.

Lower home prices and tax credits have helped the housing industry stabilize after almost four years of decline. Combined sales of existing and new homes climbed to a 5.1 million annual pace in May, the highest level so far this year. Economists are incorporating an easing in the housing slump in their forecasts of an economic recovery in the second half of 2009.

“Builders are seeing slightly better sales conditions this month as consumers take advantage of the first-time buyer tax credit, low interest rates and attractive home prices,” NAHB Chairman Joe Robson, a builder from Tulsa, Oklahoma, said in a statement. At the same time, he said, “many remain quite concerned” about competing with foreclosed properties and a lack of available credit for some potential buyers.

The builder confidence index was forecast to increase to 16 this month, according to the median estimate of 46 economists surveyed by Bloomberg News. Projections ranged from 14 to 18.

The gauge, which fell to a record low of 8 in January, averaged 16 in 2008. It was first published in January 1985.

Survey Details

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to assess the outlook for the next six months.

The builder group’s index of current single-family home sales rose to 17, the highest since September, from 14 in June. The gauge of buyer traffic increased to 14, also the highest since September, after holding at 13 for three months. A measure of sales expectations for the next six months held at 26 for a second month, after readings of 27 in May and 24 in April.

“The component gauging sales expectations for the next six months remained virtually flat for a fourth consecutive month,” David Crowe, chief economist at NAHB, said in a statement. “Builders recognize the recovery is going to be a slow one and that we are facing a number of substantial negative forces.”

Confidence increased in one of the four regions, rising to 20 in the South from 15 in June. It held steady at 15 in the West and at 14 in the Midwest, falling to 16 from 19 in the Northeast.

‘Modest Pickup’

While rising unemployment is keeping buyers cautious, home sales may be past the worst declines.

Increasing confidence “suggests a modest pickup in home sales,” James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report.

Even so, foreclosures are hurting builders.

Purchases of new homes in the U.S. fell 0.6 percent in May to an annual pace of 342,000, according to Commerce Department data. The June data is due to be released July 27.

U.S. foreclosure filings surpassed 300,000 for a fourth straight month in June, and a record 1.5 million properties received a default or auction notice or were seized by banks in the first half of the year, RealtyTrac Inc. said earlier today.

New-home sales in the U.S. likely will remain little changed in coming months because of low consumer confidence and the difficulty would-be buyers have getting loans, Pulte Homes Inc. Chief Executive Officer Richard Dugas said at an investor conference on June 23.

“Buyers are unwilling and unable to take on new mortgages,” Dugas said at a conference in Boston. “Despite the record fall in prices and the tremendous deal that consumers get relative to the 30-year mortgage rates where they are today, we’re still having difficulty convincing people to get into the market.”

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net.

Last Updated: July 16, 2009 13:00 EDT