The National Association of Home Builders/Wells Fargo housing market index increased two points to 18 this month from July and August record lows of 16. With this, housing developers are becoming more confident and optimistic about their projections for the next six months.

The survey was taken in the first 10 days of September, and for the most part doesn't reflect the fall in mortgage rates since the government's takeover of mortgage finance companies Fannie Mae and Freddie Mac. It also doesn't take into consideration this week's Wall Street turmoil, which may cause the rates to go down as anxious investors look for safer havens like government bonds.

Immediately after the Fannie and Freddie seizure, "the positive impact on mortgage rates was probably not apparent to many builders," the trade group's chief economist, David Seiders, said in an interview.

Builders have faced falling home prices, rising foreclosures and an excessive inventory oversupply of unsold homes. But the industry is growing hopeful that consumers will finally take advantage of deeply discounted prices. New home sales likely will stabilize by year-end, Seiders predicts.

Another key reason for the more positive outlook is the temporary $7,500 tax credit for first-time homebuyers passed by Congress this summer. The credit basically works out to a 15-year, interest-free loan.

All three components of the index improved, with the largest gain in the index of builders' sales expectations over the next six months. That gauge rose by six points to 30.

The latest housing market index reflects a survey of 461 residential developers nationwide, tracking builders' perceptions of current market conditions and expectations for home sales over the next six months.

Index readings higher than 50 indicate positive sentiment about the market. The seasonally adjusted index has been below 50 since May 2006 and has been below 20 since April.