The National Association of Home Builders’ monthly confidence index dropped four points to a reading of 86 in December, the trade group said. This was the first time that the index had dropped after three consecutive months of record highs. Even with December’s decline, the figure represents the second-highest reading in the index’s history.

Index readings over 50 are a sign of improving confidence. The index had fallen below 50 in April and May in the immediate wake of the pandemic.

What happened: The three main indicators that guide the overall index all decreased by four points from November’s reading.

The index that measures sentiment regarding prospective buyer traffic came in at 73. The index of expectations for future sales over the next six months dropped to 85, and the gauge of current single-family home sales slipped to 92.

Sentiment also declined across all parts of the country. The index fell by three points in Northeast, Midwest and South, and by two points in the West.

The big picture: The housing market has remained a bright spot in the economy throughout the pandemic, and despite the monthly decline in December the home-building industry remains on strong footing. That said, builders are responding to buyers who appear to be cooling on the market.

To some extent, this could be a reflection of buyers growing accustomed to low mortgage rates, meaning that cheap financing is no longer providing the same boost to the market. At the same time, rising home prices across the country could be negating some of the benefit of lower interest rates.

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