Oct. 16 (Bloomberg) -- Confidence among U.S. homebuilders fell more than forecast in October to a four-month low as rising interest rates and the budget battle in Washington stifled progress in the housing market.
The National Association of Home Builders/Wells Fargo index of builder sentiment decreased to 55 this month from a revised 57 in September that was weaker than initially estimated, the Washington-based group reported today. The median forecast in a Bloomberg survey called for a decline to 57. Readings above 50 mean more builders view conditions as good than poor.
The figures show a partial closing of the federal government that began Oct. 1 and a political showdown over raising the nation’s $16.7 trillion borrowing limit are taking a toll on sentiment and delaying spending decisions. Mortgage rates close to a two-year high are also slowing gains in real estate, which has been a source of strength for the economy.
“A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation’s debt limit have caused builders and consumers to take a pause,” David Crowe, chief economist at the builders association, said in a statement. “Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.”
Estimates in a Bloomberg survey of 48 economists for the homebuilder index ranged from 54 to 60 after a previously reported September reading of 58.
All three components of the builder survey deteriorated in October. The group’s measure of the sales outlook for the next six months fell to a four-month low of 62 from 64 in September.
Prospective buyer traffic also reached the lowest level since June, falling to 44 this month from 46. The gauge of current single-family home sales decreased to 58 from 60.
Builder confidence weakened in three of the four U.S. regions, with companies in the Northeast, which includes the Washington area, showing the greatest deterioration. The index for the region declined to 31, the lowest level since April. Optimism also wavered in the South and West.
Borrowing costs for homebuyers have been rising since May. The average rate for a 30-year fixed mortgage was 4.23 percent for the week ended Oct. 10, compared with 3.39 percent a year ago, according to Freddie Mac, in McLean, Virginia. In August, the rate reached a two-year high of 4.58 percent and held close to that level through mid-September.
At the same time, sustained buyer demand has outpaced the number of homes on the market, driving prices up to the benefit of builders such as Hovnanian Enterprises Inc. and mortgage lenders including Wells Fargo & Co.
The housing market “continues to demonstrate strong momentum,” said John Stumpf, chairman and chief executive officer of San Francisco-based Wells Fargo, the largest U.S. home lender. “Home price appreciation remains strong and affordability remains excellent.”
While the government shutdown could harm bank customers and damage the economy in the near term, Stumpf expressed “guarded optimism” in the long run.
“Housing is getting better,” he said on an Oct. 11 earnings call. “For our country, I feel it’s important for our leaders in Washington to set aside partisan differences, break the logjam and find workable solutions that are in the best interest of our nation and our economy.”
--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Brendan Murray
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