The trade group said the NAHB/Wells Fargo Housing Market Index added 3 points in the month to 59, putting the index at the highest point in nearly eight years.
"Builders are seeing more motivated buyers walk through their doors than they have in quite some time," said NAHB Chairman Rick Judson in a statement.
"What's more, firming home prices and thinning inventories of homes for sale are contributing to an increased sense of urgency among those who are in the market," Judson said.
The index climbed above 50 for the first time in more than seven years in June. Readings above 50 indicate more builders view sales as good than poor, the NAHB said.
NAHB Chief Economist David Crowe said rising demand and limited inventories of new and existing homes were positive developments for home builders.
"However, this positive momentum is being slowed by the ongoing headwinds of tight credit and low supplies of finished lots and labor," Crowe said.