After jumping to the highest level in nine years last month, confidence among U.S. home builders took a sharp U-turn in October.
While still in the positive range, builder sentiment fell 5 points to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index. Fifty is the line between positive and negative on the index. This reverses four straight months of gains.
"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. "While there was a dip this month, builders are still positive about the housing market."
Of the index's three components, current sales conditions fell 6 points to 57, expectations for future sales fell 3 points to 64, and traffic of prospective buyers dropped 6 points to 41—that last one still firmly in negative territory.
High prices have been blamed for the slowdown in both existing and newly built homes. Builders have been raising prices steadily to make up for higher costs of land and labor. Some admit they pushed the envelope too far.
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Regionally, home builder sentiment remained flat in the Northeast and Midwest, gained slightly in the South and fell 1 point in the West.
Sales of newly built homes did take a huge leap in August, up 18 percent from the previous month, but most expect that jump to be revised down. The median price of a newly built home in August was up 8 percent from a year ago. Housing starts, a future indicator of the market, fell 14 percent in August from the previous month, and building permits were also down.
While the builders may not be feeling so confident about their business this month, for the public companies at least, stocks are a bright spot. As the rest of the U.S. equities market plummeted Wednesday, stocks of the nation's home builders were the outliers, rising between 3 and 4 percent, thanks to lower mortgage rates.