Homebuilders are growing more optimistic about the state of housing and say they see signs that the end of the housing market’s three-year downward spiral may be near.

The increasingly upbeat mood was reflected in an index of builders’ confidence released Monday, which rose for the second month in a row in May.

A separate report by the industry’s trade group showed housing affordability improved in the first three months of this year amid falling home prices and low interest rates.

“The bottom line is there are good signs on the horizon,” said Jerry Howard, president and chief executive of the National Association of Home Builders. “It’s fair to say we could be closing in on the bottom, but we have a long road ahead of us.”

The National Association of Home Builders/Wells Fargo housing market index rose two points to 16 in May. While still near historically low levels, the latest index reading is the highest since September.

The report reflects a survey of 733 residential developers nationwide, tracking builders’ perceptions of market conditions. Index readings lower than 50 indicate negative sentiment about the market.

The index hit an all-time low of 8 in January as mounting layoffs, strict mortgage requirements and the worsening U.S. economy sapped demand for new homes.

Index readings for current sales conditions and expectations for sales over the next six months each increased in May. The gauge for traffic by prospective buyers was flat.

The Washington-based trade group’s Housing Opportunity Index, meanwhile, which measures buyers’ purchasing power, rose to its highest level in 18 years.

A family earning the U.S. median income of about $64,000 could afford around 73 percent of all the homes sold in the first quarter, said David Crowe, NAHB’s chief economist.

Crowe has forecast that the housing market will begin picking up toward the end of this year and turn around by 2011.

But JPMorgan Chase Bank analyst Abiel Reinhart now thinks new single-family home sales hit bottom earlier this year and are gradually increasing.

“The recovery could proceed more slowly than in past cycles, however,” Reinhart wrote.

Builders still face challenges getting loans from banks to finance new construction projects, while many borrowers must comply with more stringent standards that often require them to come up with more money for a down payment.

Howard welcomed word from the Department of Housing and Urban Development will allow borrowers to put the $8,000 tax credit for first-time homebuyers toward down payments on a home – still a hurdle for some would-be buyers.

“This is an important step,” Howard said.

Last week, HUD Secretary Shaun Donovan said the Federal Housing Administration soon will allow its borrowers to get short-term loans and turn the $8,000 tax credit into a down payment.

The trade group’s report gave public homebuilder stocks a lift, with Beazer Homes leading the pack. The Atlanta-based company’s shares added 47 cents, or 20 percent, to $2.81 on Monday.