The National Association of Home Builders/Wells Fargo Housing Market Index dropped slightly in December compared to November, and was substantially lower compared to the index in December 2005.

Based on a monthly survey that measures builder perceptions and expectations for home sales, the index dropped to 32 in December, compared with 33 in November and 57 in December 2005. An index rating above 50 indicates that more builders view sales conditions as good, while a rating below 50 indicates that more builders view conditions as poor.

Builders are asked whether their perceptions of current single-family home sales and sales expectations for the next six months are either “good,” “fair” or “poor,” and also asks builders to rate the volume of prospective buyers as “high to very high,” “average” or “low to very low.” The index is based on these builder ratings.

The index was 57 in January and fell in February through September to a rating of 30 in September. The index improved in October and November before falling in December.

The current level of single-family sales has dropped from 64 in December 2005 to a level of 33 in December 2006. Traffic of prospective buyers had an index rating of 23 in December compared with 40 in December 2005. And expectations for single-family sales in the next six months fell from an index rating of 65 in December 2005 to 48 in December 2006.

NAHB chief economist David Seiders said in a statement, “The HMI has come off September’s low point, and other recent indicators confirm that buying conditions have improved and that demand is stabilizing — including improvements in measures of housing affordability, strengthening consumer assessments of home-buying conditions and an upswing in applications for mortgages to buy homes. Builders sense that the tide is turning in terms of buyer demand for their product and are feeling somewhat better about the prospects for home sales.”

Regionally, the HMI posted the biggest gain in December in the Midwest, “which has shown the greatest weakness in this measure for many months,” the builders’ group reported. The Midwest region posted a seven-point gain to 22 on the confidence scale, while the Northeast remained at 37, the South dropped a point to 39 and the West declined four points to 31.

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