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October 23, 2014

Builders Worry Rising Rates Will Slow Business

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Builders Worry Rising Rates Will Slow Business

Builder confidence in the new-home sector stayed mostly unchanged in September, holding at its highest level in nearly eight years, according to the National Association of Home Builders/Wells Fargo Housing Market Index. But more builders are reporting hesitation from buyers due to the recent rises in mortgage rates, which is increasing borrowing costs. 

"Home buyers are adjusting to the fact that, while mortgage rates are still quite favorable on a historic basis, the record lows are probably a thing of the past," says NAHB Chairman Rick Judson. 

Over the past year, builder confidence had been steadily rising, but the momentum has paused “as consumers wait to see where interest rates settle and as the headwinds of tight credit, shrinking supplies of lots for development, and increasing labor costs continue,” says David Crowe, NAHB’s chief economist. 

The index gauges builders’ perception on single-family home sales, sales expectations for the next six months, and prospective buyer traffic. Any reading over 50 indicates that more builders view conditions as “good” than “poor.” 

The overall index on builder sentiment in September remained unchanged from August at 58. A year ago at this time, the index was at 40. 

Other measures in September showed builders’ perceptions of sales conditions remained unchanged at 62 while sales expectations for the next six months dropped three points to 65. Builders’ sentiment over foot traffic of prospective buyers rose one point to 47, according to the index. 

Source: National Association of Home Builders and “Builder Confidence Steady, But Rates a Concern,” The Associated Press (Sept. 17, 2013)

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