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NAHB: Rising interest rates creates some buyer hesitancy

Builder confidence still remains at eight-year high

Builder confidence held steady in September after improving for four consecutive months, according to the National Association of Home Builders/Wells Fargo (WFC) Housing Market Index, which remained unchanged with a reading of 58 — the highest level since 2005.

On the HMI, any number higher than 50 indicates that more builders view conditions as good rather than poor.

However, NAHB Chairman Rick Judson noted that 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.

“Homebuyers 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,” he said.

Sterne Agee Chief Economist Lindsey Piegza added that an increase in financing costs has also caused homebuyer activity has slowed.

“Going forward, it remains to be seen if a further increase in rates will undermine potential demand for homes,” said Piegza.  “The housing market has been one of the silver linings in the recovery but with minimal income growth and tepid savings, rising rates could undermine the consumer’s ability to take on additional mortgage debt, adding risk to the recovery,” she added.

Savings may creep back up based on numbers showing incomes remain flat, but did not retreat. The U.S. Census Bureau reported Tuesday that the median household income in the United States in 2012 was $51,017, not statistically different in real terms from the 2011 median of $51,100. This followed two consecutive annual declines.

A breakdown of the components of the HMI revealed a bit of a mixed bag, with current sales conditions unchanged at 62, while the assessment of future conditions fell from 68 to 65. The prospective buyers’ traffic rose from 46 to 47.

All four regions saw improvement in their three-month moving average HMI scores in September, including a two-point gain to 41 in the Northeast, a four-point gain to 64 in the Midwest, a two-point gain to 56 in the South and a four-point gain to 61 in the West, respectively.

“Following a solid run up in builder confidence over the past year, we are seeing a pause in the momentum 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,” noted NAHB Chief Economist David Crowe.

Builder stocks aren't reacting negatively to the news just yet. On the HW 30 index — HousingWire's exclusive index of stocks impacting the housing economy — all homebuilder stocks remained positive for Tuesday, nearing the close of the market. NEaring trading day close, Homebuilder D.R. Horton (DHI) was up 1.01% for the day, while Lennar (LEN) was 1.55% higher than it started the day. Additionally, Toll Brothers (TOL) rose 0.98% for the day.

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