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Higher rates start to pinch US home builders

September 16, 2003
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NEW YORK, Sept 16 (Reuters) - A nearly three-month rise in mortgage rates began to erode U.S. home builder optimism in September according to a report that suggested the higher costs of borrowing may be starting to dampen home buying.

On Tuesday the National Association of Home Builders said its housing market index, a measure of builder sentiment about sales and buyer traffic, dropped to 68 in September from 71 in August.

"We are very likely to see a slowdown here. The reason is interest rates are up," said Chris Low, chief economist at FTN Financial.

Mortgage rates have steadily climbed since late June as positive economic data and guarded optimism from the Federal Reserve have fueled views the U.S. economy is improving.

Last week, U.S. housing agency Freddie Mac reported that 30-year rates were at 6.16 percent, but rates on 30-year mortgages, the most popular in the United States, have risen to as high as 6.49 percent this summer.

"The fence sitters rushed in. There's not much business to follow up on that," Low added, referring to home buyers who had been waiting for rates to go lower and instead are spurred into action by higher rates.

Components of the NAHB index showed a slight drop or were little changed. The trade group's rating for current sales of single family homes fell to 73 in September from 77 in August, while the prospect for new home sales over the next six months was 78 in September -- unchanged from August. Traffic of prospective buyers, meanwhile, fell to 50 from 55.

A reading above 50 indicates that more builders view sales conditions as "good" than "poor."

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