U.S. homebuilders' confidence in the housing market held this month at its highest level in nearly eight years. But builders are starting to worry that sales may slow if mortgage rates continue to rise.
U.S. homebuilders’ confidence in the housing market held this month at its highest level in nearly eight years. But builders are starting to worry that sales may slow if mortgage rates continue to rise.
The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday registered at 58 this month. That’s unchanged from August, which was revised down from an initial reading of 59.
Readings above 50 indicate more builders view sales conditions as good, rather than poor.
In the latest survey, which included 264 respondents, a measure of current sales conditions was unchanged, while a gauge of traffic by prospective buyers rose one point. But builders’ outlook for single-family home sales over the next six months fell three points.
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“While builder confidence is holding at the highest level in nearly eight years, many are reporting some hesitancy on the part of buyers due to the sharp increase in interest rates,” said Rick Judson, the NAHB’s chairman.
Mortgage rates have risen more than a full percentage point since May, when Federal Reserve Chairman Ben Bernanke first indicated the Fed could slow its $85 billion a month in bond buying this year.
The Fed is meeting this week and many economists expect it will begin to reduce its bond buying by about $10 billion, according to a survey by The Associated Press. The bond purchases are intended to lower longer-term interest rates and encourage more borrowing and spending.
Builder confidence has been climbing steadily since the fall of 2011, gaining momentum in concert with the housing recovery. A year ago, the index was at 40. The last time the reading was above 58 was in November 2005, when it was 61. U.S. sales of new homes peaked in July that year.
Despite the rise in mortgage rates, financing a home remains low by historical standards. The average rate on the 30-year fixed mortgage was 4.57 percent last week, according to Freddie Mac.
But higher rates have spurred some homebuyers to close deals quickly or hold off altogether.
Sales of newly built homes fell 13.4 percent to a seasonally adjusted annual rate of 394,000 in July, the lowest level in nine months. Sales are still up 7 percent in the 12 months ending in July. Yet the annual pace remains well below the 700,000 that is consistent with a healthy market.
That’s stoked concerns that the market’s momentum could slow as interest rates rise further.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.