Builder confidence fell this month amid concerns over housing affordability issues.
Sentiment in the market for new homes dropped eight points to 60 in November in the latest National Association of Home Builders/Wells Fargo Housing Market Index.
Despite the sharp drop, builders remain positive.
"For the past several years, shortages of labor and lots along with rising regulatory costs have led to a slow recovery in single-family construction," said NAHB chief economist Robert Dietz.
"While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall," Dietz said.
"With future interest rate hikes expected, builders are being more cautious and are urging policymakers to take note," Dietz said.
"Recent policy statements on economic conditions have lacked commentary on housing, even as housing affordability has hit a 10-year low," Dietz said.
"Given that housing leads the economy, policymakers need to focus more on residential market conditions," he siad.
All the major indices fell last month, including three of the four regional trackers.
The index measuring current sales conditions fell seven points to 67, the component gauging expectations in the next six months dropped 10 points to 65 and the measurement charting buyer traffic registered an eight-point drop to 45.
Regionally, the Northeast rose two points to 58, the Midwest fell one point to 57, the South declined two points to 68 and the West dropped three points to 71.
Any number over 50 indicates that builders view conditions as good rather than poor.
"Builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices," said National Association of Home Builders Chairman Randy Noel, a custom home builder from LaPlace, La.