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Home builders' confidence at highest level in 8 years

WASHINGTON — Confidence among home builders in September remained at the highest level in almost eight years, despite rising mortgage rates, according to a report released Tuesday.

The National Association of Home Builders/Wells Fargo housing-market index remained at 58 in September. Readings above 50 signal that builders generally are optimistic about sales trends. In the bubble year of 2005, the sentiment gauge hit an average reading of 67.

September’s unchanged level followed four months of gains.

“Following a solid run-up in builder confidence in the past year, we are seeing a pause in the momentum as consumers wait to see where interest rates settle and as the head winds of tight credit, shrinking supplies of lots for development and increasing labor costs continue,” said David Crowe, NAHB’s chief economist.
Economists polled by MarketWatch had expected a reading of 59 for September, matching August’s original level. On Tuesday, NAHB revised August’s result to 58.

“In short, the index continues to show net strengthening. ... The message is that other factors are more than offsetting higher mortgage rates,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. “Meanwhile, in level terms, mortgage rates are still low.”
The Federal Reserve has been purchasing Treasurys and mortgage-backed securities, looking to keep rates down. Low rates encourage people to buy homes. An announcement that the Fed will start to reduce its purchases could come as early as Wednesday.
Mortgage rates started rising in early May on speculation about the Fed’s tapering. There has been concern that the rise in rates has hit the housing market more than had been expected.

But builders’ attitudes seem resilient. Markets watch builder-sentiment readings to get a feeling for the health of housing. The overall sentiment level among builders has increased 45 percent in the past year, far outpacing construction growth. On Wednesday, the government will report on new home construction, and economists expect to see a seasonally adjusted annual starts rate of 921,000 in August, which would be up 23 percent from the year-earlier period.
In September’s housing-market index, the component measuring views on current sales conditions remained at 62.

Meanwhile, a gauge of prospective-buyer traffic ticked up to 47 from 46 in August, and a component measuring sales expectations fell to 65 from 68.

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