Homebuilders Worried About Rising Mortgage Rates

U.S. homebuilder optimism, while still robust, has dropped in June in large part because higher interest rates are starting to make it more expensive to buy a home.

Sentiment among homebuilders fell 2 points to a reading of 67 in June, industry trade group the National Association of Home Builders (search) said Tuesday.

"I would attribute it completely to the higher mortgage rates. Mortgage rates are up a full percentage point from where they were in March. That will have some affect on families looking for homes," said Frank Nothaft, chief economist at Freddie Mac (search).

Freddie Mac last week said rates for 30-year mortgage loans — the most commonly used home loan — were at 6.30 percent. That is up from 5.21 percent a year ago.

"We are seeing a little bit of retrenchment in demand because of that rise in rates," said Celia Chen, director ofhousing economics at Economy.com of West Chester, Pa. "We saw a decline in the index because of rising mortgage rates."

The NAHB's gauge of traffic of prospective buyers fell 3 points to 52 in June, suggesting a decline in the number of people visiting model home units over the last month, according to the NAHB.

An index reading of greater than 50 means that more builders view sales conditions as good, rather than poor.

Also, the NAHB's measure for current sales of new homes fell 1 point to 73 in June, and the index gauging its members' sales expectations fell 2 points to 73.

"I am not surprised builder expectations are not was rosy as they were before. It is not as euphoric as it was in previous months. But, these are still pretty high readings," said Nothaft.

In the meantime, economists believe that the sound of hammers on construction sites will linger into the summer season.

"The index went down slightly, but it still is at a fairly strong level. Homebuilding is off of its peak, but probably will remain very strong through the summer," said Chen.

The economist at Economy.com (search) added: "Demand for single family homes is going to slow more as we go into the summer."