Builder confidence in the market for newly built single-family homes reversed course and dropped after four consecutive months of increases, falling five points to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index.

“We are seeing a return to the mid-50s index level trend established earlier in the summer, which is in line with the gradual pace of the housing recovery,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware. 

In addition, all three HMI components declined in October. The index gauging current sales conditions decreased six points to 57, while the index measuring expectations for future sales slipped three points to 64 and the index gauging traffic of prospective buyers dropped six points to 41. 

“While there was a dip this month, builders are still positive about the housing market. After the HMI posted a nine-year high in September, it’s not surprising to see the number drop in October,” said NAHB Chief Economist David Crowe. “However, historically low mortgage interest rates, steady job gains, and significant pent up demand all point to continued growth of the housing market.” 

Regionally, the three-month moving average for the Northeast and Midwest remained flat at 41 and 59, respectively. The South rose two points to 58 and the West registered a one-point loss to 57.

“The drop in confidence reflects the gradual pace of housing recovery and the fact that multifamily housing still dominates home construction.  Still there’s some good news to look forward to with rates dropping significantly this week and an upbeat jobs report last month,” Redfin Chief Economist Nela Richardson said.

“The most encouraging sign is that builders remain confident about future single-family sales, which has a much bigger impact on the economy than multifamily,” she added.