NEW YORK – An index of U.S. home builder sentiment fell in November to a two-and-a-half-year low, the National Association of Home Builders said on Wednesday, in response to low consumer confidence and rising mortgage rates.
The NAHB/Wells Fargo Housing Market index slid to 60 in November, seasonally adjusted, from October's revised 68, for the lowest since May 2003, when it also came in at 60.
The index's 8-point drop was the sharpest in any month since October 2001, when it fell to 46 from September's 55.
"It's important to keep today's report in perspective," said NAHB President Dave Wilson, a custom home builder from Ketchum, Idaho. "Many builders still have substantial backlogs of unfilled orders and will remain quite busy in coming months.
"But we're well aware that some slowing of demand is inevitable following the record-breaking sales activity that has prevailed for some time," said Wilson.
Confidence fell in all regions, according to the NAHB. In the Northeast, the index fell 6 points to 61 while dropping by 7 points to 38 in the Midwest. In the South, the index posted an 8-point fall to 68 and slumped 13 points in the West.
However, November's overall level remains well above the midpoint that indicates the majority of builders still sees conditions as positive in their markets, the NAHB said.
Readings above 50 indicate more builders view their market conditions as favorable, rather than poor.
"No huge drop is in the cards. The sharp decline in the housing market index probably overstates the actual degree of deterioration in the single-family market, and it's most likely that we're engaged in an orderly cooling process that will lead to somewhat lower home sales and production in the future," said NAHB chief economist David Seiders.
"We're looking for a five or six percent decline in home sales next year, compared to 2005," he added.
Seiders cited deterioration in consumer attitudes in recent months, spurred by recent hurricanes and resulting higher energy prices, as a significant factor in November's builder confidence gauge. He also cited rising interest rates on both fixed-and adjustable-rate mortgages.
Fixed rates averaged 6.35 percent in the survey period compared to 6 percent in the prior month and 5.7 percent the month before that.
An index of U.S. mortgage applications fell 0.6 percent to 657.6 in the week to Nov. 11, as interest rates climbed to 17-month highs and demand for refinancings slid to their lowest for the year, according to The Mortgage Bankers Association.
While the MBA's purchasing index rose 2.6 percent to 477.9 in the week, it remains well below the 503.9 of mid-October.