Builder confidence in the market for newly built single-family homes slipped two points in July to a level of 64 from a downwardly revised June reading on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). It is the lowest reading since November 2016.

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo HMI 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.

All three HMI components reportedly registered losses in July, but are still in solid territory. The components gauging current sales conditions fell two points to 70, while the index charting sales expectations in the next six months dropped two points to 73. Meanwhile, the component measuring buyer traffic slipped one point to 48.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 47. The West and Midwest each edged one point lower to 75 and 66, respectively, while the South dropped three points to 67.

“Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber,” said Granger MacDonald, NAHB chairman. “This is hurting housing affordability even as consumer interest in the new-home market remains strong.”

“The HMI measure of current sales conditions has been at 70 or higher for eight straight months, indicating strong demand for new homes,” said Robert Dietz, NAHB chief economist. “However, builders will need to manage some increasing supply-side costs to keep home prices competitive.”

For more information, visit www.nahb.org/hmi or www.housingeconomics.com.