The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) registered an eight-point drop in builder confidence for November. The builder confidence level fell to 60 in the market for newly-built single-family homes. Despite a steep drop, the number is still above 50, which indicates market conditions are seen as mostly positive.

“Builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices,” says NAHB chairman Randy Noel.

The HMI is derived from a monthly survey gauging builder perspectives on sales and sales expectations for single-family homes for the next six months. Builders rate sales expectations as “good,” “fair” or “poor,” and then rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores are used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as mostly positive.

“For the past several years, shortages of labor and lots along with rising regulatory costs have led to a slow recovery in single-family construction,” says NAHB chief economist Robert Dietz. “While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months, coupled with the cumulative run-up in pricing, has caused housing demand to stall.”

With higher interest rates looming, Dietz says that builders have adopted a more cautious approach to market conditions. He urged policymakers to take note.

“Recent policy statements on economic conditions have lacked commentary on housing, even as housing affordability has hit a 10-year low,” says Dietz. “Given that housing leads the economy, policymakers need to focus more on residential market conditions.”

The HMI registered declines in all of the major indices: current sales conditions fell seven points to 67; expectations for the next six months dropped 10 points to 65; and buyer traffic dropped eight points to 45.

The three-month regional HMI scores were as follows: the Northeast rose two points to 58, the Midwest fell one point to 57, the South declined two points to 68 and the West dropped three points to 71.

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