"Following eight consecutive months of improvement, builder confidence leveled off in January and has since edged down several points," said National Association of Home Builders Chairman Rick Judson, a home builder from Charlotte, N.C. "Although many of our members are reporting increased demand for new homes in their markets, their enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor. At the same time, problems with appraisals and credit availability remain considerable obstacles to completing deals."

David Crowe, the association’s economist, said the market still has hurdles to overcome and the index’s recent declines reflect that.

"In addition to tight credit and below-price appraisals, home building is beginning to suffer growth pains as the infrastructure that supports it tries to re-establish itself," Crowe said. "During the Great Recession, the industry lost home building firms, building material production capacity, workers who retreated to other sectors and the pipeline of developed lots. The road to a housing recovery will be a bumpy one until these issues are addressed, but in the meantime, builders are much more optimistic today than they were at this time last year."  

The index gauges builder sentiments for the current market and the next six months. A number above 50 means a majority of builders see conditions as good rather than poor.