A popular investing aphorism states that housing markets must climb a wall of worry in order to advance. If anyone has had more worries than most in recent years, it's the homebuilders. Over the past two months though, they seem to be worrying a little less. The National Association of Homebuilders reported its housing market index – a measure of industry confidence – rose three points to 22 last month, posting its highest reading since August 2007.

Homebuilders are still far from euphoria: readings below 50 indicate negative sentiment about the housing market. The last time the NAHB's index was above 50 was in April 2006, and we saw how the ensuing four years played out. Perhaps the fact that homebuilders remain somewhat guarded bodes well for the industry's future. Still, many homebuilders are expecting improved sales and home buyer traffic in coming months despite the end of homebuyer tax incentives.

Continued price stabilization is helping to lift spirits as well. National home prices increased 1.7 percent in March compared to the same year-ago period, marking the second month of year-over-year increases, according to CoreLogic's home price index. Distressed sales continue to cloud the outlook, though CoreLogic noted that the longer-term forecast remains positive, with prices expected to rise nationally another 2.7 percent over the next 12 months.

Stabilizing and improving prices are also contributing factors to the surge in housing starts, which rose 5.8 percent to an 18-month high of 672,000 units in April. Of course, buyers eager for federal tax credits are another contributing factor, which has some pundits concerned about a precipitous drop in sales in coming months. Their concerns are not unfounded. Permits dropped 11.5 percent, which indicates many builders remain cautious (hence, the 22 reading of the latest NAHB confidence index).

The good news is that continued economic growth is more likely than not. The Federal Reserve expects GDP to grow by roughly 3.5 percent this year, up from its 3.1 percent forecast in January. Meanwhile, unemployment is expected to drop to the low 9-percent range. As the economy and employment recover, the Fed expects inflation to remain subdued.