The small decline is not a reason for worry, said NAHB chief economist Robert Dietz.

"The October reading represents a mild pullback from a jump in September, and indicates that the housing market continues to make slow and steady gains," Dietz said.  "Moreover, mortgage rates remain low and the HMI index measuring future sales expectations has been over 70 for the past two months. These factors will sustain continued growth in the single-family market in the months ahead."

NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Illinois, pointed out that the index is still at a historically high level.

"Even with this month's drop, builder confidence stands at its second-highest level in 2016, a sign that the housing recovery continues to make solid progress," Brady said. "However, builders in many markets continue to express concerns about shortages of lots and labor."