The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) is flirting with the danger zone.  Although stressing that the index remains in positive territory, NAHB said its measure of home builder confidence lost 4 points compared to November, landing at 56.  It was the lowest reading since May 2015 and followed an 8-point drop last month.  NAHB said the index is reflecting concerns over housing affordability.

"We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs," said NAHB Chairman Randy Noel.  "However, recent declines in mortgage interest rates should help move the market forward in early 2019."

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges 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.

Each of the three HMI component indices posted declines. The index measuring current sales conditions fell 6 points to 61, the component gauging expectations in the next six months dropped 4 points to 61, and the metric charting buyer traffic edged down 2 points to 43.

Regional measurements are expressed as three-month moving averages.  They too all retreated.  The Midwest dropped 2 points to 55; the West and South both fell 3 points to 68 and 65, respectively; and the Northeast registered an 8-point drop to 50.

"The fact that builder confidence dropped significantly in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market," NAHB Chief Economist Robert Dietz said. "This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points."