The index dropped from a revised December reading of 57 to 56 in January. Any figure above 50 indicates more builders are optimistic than pessimistic about business conditions.
"The January level demonstrates builders' general positive attitude toward the current and future market, but with some continued attention to the headwinds affecting the industry," the trade group said.
The trade group said builders were frustrated over low appraisals, which force buyers to come up with larger down payments to make up the difference between agreed-upon selling prices and what the bank will finance.
NAHB said all three component indexes that make up the confidence index fell slightly. The current sales conditions dropped 1 point to 62. The sales expectations index dropped 2 points to 60. The traffic of prospective buyers index gave up 3 points to 40.