The National Association of Home Builders/Wells Fargo gauge rose 3 points to 37, according to data out Monday. The figure matched the median forecast in a Bloomberg survey of economists.

Prospects that housing demand will at least stabilize next year are starting to improve with mortgage rates falling to their lowest levels since August. Even with the decline, borrowing costs are more than twice as high as they were at the end of 2021 and home prices remain elevated.

"The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur home buyer demand in the coming months," Robert Dietz, NAHB chief economist, said in a statement.

Despite the recent decline in financing costs, 60% of developers are still extending incentives to spur demand. Some 36% of builders reported cutting prices in December, matching the previous month as the highest share of the year.

The report showed the gauge of prospective buyer traffic also climbed for the first time in five months, while a measure of expected sales reached a three-month high.