"What we're seeing is essentially a pause in what had been a fairly rapid buildup in builder confidence that started last September," NAHB chief economist David Crowe said in a statement.
Existing home sales and construction on new homes fell marginally in February. Both indexes, along with some other market indicators, had shown sustained market improvements prior to recent lackluster results, which may have cooled builders' confidence.
Jed Kolko, chief economist of listing service Trulia said disappointing job numbers have also chipped away at market enthusiasm.
"The job market drives demand for housing. Employment, while still growing, stumbled in March, and that shook confidence across the board," he said. "The latest consumer confidence and small business confidence numbers are both down, too -- not just builder confidence."
Crowe pointed to stultifying market conditions, which have plagued builders throughout the housing crisis, as behind the disappointing result, including banks' wariness to originate loans and the competition posed by the excess supply of foreclosures, which sell at below-market prices.
Bright spots have been emerging in the real estate market over the past year, and some economists say that they expect home prices to turn the corner by the end of 2012.
Home sales had risen by 13 percent in the previous six months as of March, according to Capital Economics, while the delinquency rate had dropped by 14 percent in the last year, as of February 2012, according to Lender Processing Services.
Some indexes that aim to provide a near-real-time picture of price movements are actually showing that home prices have begun to increase. But looming over green shoots in the market, is the possibility of an impending foreclosure wave that could put downward pressure on home prices.
"Those distressed homes will compete with new homes for sale, cutting into builders' profits," Kolko said of a possible flood of foreclosures. "Despite the drop in confidence, new home sales are 11% higher than one year ago, while existing home sales are 9% higher than one year ago, so the new-home sale market is recovering, and that's good news for builders.
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