The National Association of Home Builders/Wells Fargo gauge of housing market conditions rose by 4 points to 48 this month, according to data released Thursday. That beat the median estimate in a Bloomberg survey of economists that called for a reading of 46.

Builder sentiment began rebounding late last year as mortgage rates declined, falling below 7% in December. While borrowing costs have started to rise again, that hasn't yet undermined the nascent recovery in the new-homes market.

The Federal Reserve has signaled a willingness to lower interest rates this year, though progress in lowering inflation has slowed, pushing back expectations for when the central bank might start its cuts.

"While mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year," Alicia Huey, chair of the NAHB, said in a statement. 

The NAHB's measure of expected sales increased three points, while gauges of prospective buyer traffic and current sales also rose.

Builder sentiment climbed in all four regions of the US, with especially strong gains in the West and Northeast. 

With mortgage rates still down from their fall peaks, fewer builders are cutting prices to lure customers. In February, 25% of builders reported cutting prices, compared with 31% who trimmed prices a month earlier. The average price reduction has stayed at 6% for eight months. The share of builders offering incentives to customers also declined, to 58% in February from 62%. It was the smallest share offering incentives since August. 

Overall, the NAHB expects single-family starts to rise about 5% this year, NAHB Chief Economist Robert Dietz said in the statement. The federal government is scheduled to release data on January housing starts on Friday.