The National Association of Home Builders (NAHB)/Wells Fargo housing market index (HMI) for June fell 2 points to an index score of 64. The May index had gained 3 points month over month to 66, and since January the index had climbed back from a reading of 56 in December. Economists polled by Bloomberg were expecting a boost to a reading of 67.

Builders see solid demand for single-family homes but they are also experiencing rising development and construction costs, according to NAHB chairman Greg Ugalde.

The index is based on an NAHB monthly survey of homebuilder perceptions of current single-family home sales and expectations for sale in the next six months. An index reading above 50 indicates that more builders view sales conditions as good than view them as poor.

The current sales conditions sub-index for June fell by 1 point to 71 and the sub-index that estimates prospective buyer traffic also dropped by 1 point to 48. The sub-index measuring sales expectations for the next six months fell by 2 points from 72 to 70.

NAHB chief economist Robert Dietz noted:

Despite lower mortgage rates, home prices remain somewhat high relative to incomes, which is particularly challenging for entry-level buyers. And while new home sales picked up in March and April, builders continue to grapple with excessive regulations, a shortage of lots and lack of skilled labor that are hurting affordability and depressing supply.

In the NAHB’s regions, three-month moving average indexes rose in two of four regions. The Northeast index score increased by 3 points to 60. The average index also rose by 3 points to 57 in the Midwest. In the West region, the index score remained unchanged at 71 and in the South, the score fell by 1 point to 67.

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