Tight Credit, Lack of Lots Dampen Home Builder Optimism

After strong gains this summer, home builders seem to be feeling a fall chill.

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A mini building boom this summer helped buoy hopes that the construction sector and housing market were finally getting back on track, but that optimism seems to be cooling along with weather, according to an industry report released Tuesday.

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After strong gains in recent months, confidence among the nation's home builders edged up a mere 1 point in October to 41, according to the National Association of Home Builders. Although the gain in October brings the index to its highest level since June 2006, experts cited a bevy of obstacles still plaguing the market for keeping broader sentiment in negative territory (any reading below 50).

"The slight gain in builder confidence this month is an indication that, while still moving forward, the speed at which the housing recovery is proceeding is being moderated by the various constraints such as tight credit, difficult appraisals and more recently, the limited inventory of buildable lots in certain markets," NAHB Chief Economist David Crowe said in a statement. "These are the complicating factors that make it difficult for builder confidence to reach and surpass the 50-point mark, at which an equal number of builders view sales conditions as good versus poor."

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Following significant gains in September, sentiment among builders about current sales conditions and sales expectations remained unchanged. The only positive move in the index came from prospective buyer traffic, which increased 5 points to its highest level since April 2006.

More housing data is on tap this week, including housing starts and existing home sales, which should provide a fuller picture of the housing market as it heads into the more staid winter months. Thanks to a rapidly dwindling inventory of existing homes for sale, experts say home builders might get a boost as would-be buyers look to new construction while house hunting.

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  • Meg Handley is a reporter for U.S. News & World Report. You can  follow her on Twitter or reach her at mhandley@usnews.com.