Builders remain cautiously optimistic about the single-family residential market, but this month's National Association of Home Builders/Wells Fargo Housing Market Index (HMI) slid two points to a score of 63 in October. This month's result is also two points lower than last October, when the reading was 65.

"The October reading represents a mild pullback from a jump in September, and indicates that the housing market continues to make slow and steady gains,” NAHB Chief Economist Robert Dietz commented in a statement.

Three HMI components posted different results in this month. Builders rated current sales conditions at a 69 out of 100, a two-point drop from September. Traffic of prospective buyers, which has been on the soft side since 2005, fell from 48 to 46. Meanwhile, future sales expectations in the next six months rose from last month's 71 to 72.

"Mortgage rates remain low and the HMI index measuring future sales expectations has been over 70 for the past two months. These factors will sustain continued growth in the single-family market in the months ahead,” said Dietz.

Two of four regions reported rising scores of HMI's three-month moving averages. The Northeast and Midwest, where indexes are relatively lower, gained four points and two points, respectively, to readings of 46 and 59. The South lost four points to 64, while the West declined from September's 82 to this month's 74.

“Even with this month’s drop, builder confidence stands at its second-highest level in 2016, a sign that the housing recovery continues to make solid progress,” said NAHB Chairman Ed Brady, in a statement. “However, builders in many markets continue to express concerns about shortages of lots and labor.”

The index measures builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

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