By Sarah Chaney 

A gauge of U.S. home-builder confidence fell sharply in November, dragged down by heightened affordability concerns in the housing market.

The National Association of Home Builders on Monday said its housing-market index dropped by eight points to a reading of 60 in November, well below economists' expectations and the lowest level in more than two years.

The index measures builder confidence in the market for new single-family homes. Figures over 50 mean more builders see conditions as good rather than bad, which means that, despite the November drop, builder sentiment is still in positive terrain.

November's drop reflects builders' rising concerns over faltering demand in light of climbing interest rates and home prices.

Labor shortages and rising regulatory costs have held down single-family construction for several years, said Robert Dietz, NAHB chief economist.

"While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall," Mr. Dietz said.

Sentiment measures of current sales conditions, sales expectations and buyer traffic all fell in November.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said Hurricanes Florence and Michael could have pushed down builder sentiment, so a December rebound is possible.

"Indeed, once the hurricane distortions fade from the new home sales numbers, we expect to see a clear rebound for the next few months, before the underlying softening trend re-emerges," Mr. Shepherdson said in a note to clients. "The housing market is softening, but it is not melting down, and these data likely overdo the gloom."

The index touched the highest level in 18 years in December, and pulled back this year as supply constraints and an affordability crunch continued to weigh on the housing market.

Though home-price growth has moderated in recent months, it has outpaced wage growth for years, making homes out of reach for many first-time buyers.

Meanwhile, mortgage rates are approaching 5%.

The prospect of future interest-rate increases means builders are taking a more cautious approach to the market, Mr. Dietz said.

Recent economic data underscore weakness in building momentum. Home building declined 5.3% in September from the prior month, according to the Commerce Department's latest housing starts report. Building permits, which can signal how much construction is in the pipeline, also fell.

The Commerce Department releases its report on new-home construction for October Tuesday.

Write to Sarah Chaney at sarah.chaney@wsj.com

(END) Dow Jones Newswires

November 19, 2018 11:41 ET (16:41 GMT)

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