The National Association of Home Builders/Wells Fargo index of housing market conditions increased by 3 points to 51, according to data released Monday. The median estimate in a Bloomberg survey of economists called for a reading of 48.

Builder sentiment has been improving so far this year, though it's still well below prepandemic levels. A measure of expected sales in the next six months rose to 62, the highest since June. Gauges of prospective buyer traffic and current sales advanced to seven-month highs, NAHB data showed.

Even with the recent pickup, builder sentiment may remain below its longer-term average until borrowing costs fall more significantly, and the Federal Reserve has delayed cutting interest rates because of stubborn inflation. Before the pandemic, builder sentiment was in the 70s and it peaked at 90 in the frenzied market of late 2020.

"With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market," Robert Dietz, NAHB chief economist, said in a statement. 

In recent months, builders have generally cut back on the price breaks they've offered consumers to boost sales. In March, 24% of builders reported cutting prices, down from 36% in December and the lowest share since July. 

The share of builders offering customers some form of incentives was 60% in March, and it's hovered between 58% and 62% since September, the NAHB said.

Builder sentiment rose in the Midwest by 11 points to 49 in March, the most of any region, while also climbing slightly in the South. Sentiment declined slightly in the Northeast and West. 

The government will offer a snapshot of home construction Tuesday when it releases February housing starts and building permits data.