The National Association of Home Builders/Wells Fargo Housing Market Index slipped two points in January, after jumping six points to reach the highest level since July 2005 in the previous month.
The HMI for January came in at 67, compared to the downwardly revised reading of 69 for December 2016.
The association said in a release that builder confidence for newly built single family homes remains "on firm ground."
NAHB chief economist Robert Dietz said, "NAHB expects solid 10 percent growth in single-family construction in 2017, adding to the gains of 2016. Concerns going into the year include rising mortgage interest rates as well as a lack of lots and access to labor."
All three HMI components saw decreases in January. The component measuring current sales conditions declined three points to 72, the index gauging sales expectations in the next six months saw a two-point drop to 76 and the component measuring buyer traffic recorded a one-point decrease to 51.
Any number over 50 on the indexes indicates that more builders see conditions as good rather than poor.
In regional HMI scores for three-month moving averages, the Northeast logged a two-point increase to 52 and the Midwest saw a three-point rise to 64. The South and West remained unchanged at 67 and 79, respectively.