***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis from Chief Economist David Crowe.

In the October measure of home builder confidence, sentiment dropped back to levels comparable with the second half of 2015. The November NAHB/Wells Fargo Housing Market Index dropped three points from an upwardly revised October level to 62. The index has been above 60 since June 2015 and remains well above the tipping point of 50, meaning there are more builders who consider the market to be improving compared to the number of those who see it worsening.

Two of the three components also fell back to the levels established in the summer. The current sales index dropped three points to 67, equaling the September level and remaining better than June through August levels. The expectation for future sales dropped five points to 70, the same as July and August levels. The traffic component increased one point to 48, the highest level since October 2005. These declines mirror a 3.4% decline in existing home sales, as reported by the National Association of Realtors.

Home builders continue to express concern about the lack of buildable lots and limited availability of construction labor crews. These supply constraints have limited builders’ ability to bring new homes into inventory. However, builders are seeing more potential buyers show up at their building sites, model homes and offices as consumers become more confident in the housing market and the overall economy.

Reflecting the dip in builder confidence, total housing starts declined in October, due to a fall in multifamily activity from an elevated September rate. The pace of October multifamily starts was at 338,000 on an annual basis, which was the lowest since March 2015. Nonetheless, multifamily starts are up 10.4% on a year-to-date basis compared to this time last year on strong multifamily developer confidence readings.

Single-family starts were down 2.4% to 722,000 on an annual basis, with three of the four census regions reporting slight increases, while single-family starts in the South were down 6.9%. Year-to-date single-family starts are up across all regions, as are single-family permits, suggesting that the slight October drop is temporary.

Tags: economics, eye on the economy, housing