Prices, mort­gage rates ham­mer builders

Boston Herald - - BIZ SMART -

WASH­ING­TON — Home­builders took a beat­ing yes­ter­day as ris­ing in­ter­est rates and home prices dis­cour­age po­ten­tial buy­ers. Mort­gage buyer Fred­die Mac said yes­ter­day that the av­er­age rates on 30year, fixed-rate mort­gages hit 4.94 per­cent, a 7-year high. The av­er­age rate a year ago was 3.9 per­cent. Also yes­ter­day, builder D.R. Horton said home de­liv­er­ies in the first quar­ter will come in be­low what Wall Street was ex­pect­ing. It cited home prices and mort­gage rates. The Texas home­builder led all other ma­jor play­ers down­ward, fall­ing more than 5 per­cent in mid­day trad­ing. Oth­ers fell about 2 per­cent to 4 per­cent. Although U.S. home price gains slowed for the fifth straight month in Au­gust, they’ve been run­ning ahead of wage gains for five years. Com­bined with the rapidly ris­ing cost of bor­row­ing money, many would-be buy­ers are be­ing pushed out of the mar­ket. The Com­merce Depart­ment re­ported last month that sales of new U.S. homes plunged 5.5 per­cent in Septem­ber, the fourth con­sec­u­tive monthly drop. The an­nual rate of home sales has de­clined 15.3 per­cent since May. Builders had as­sumed that a strong econ­omy would help fuel home sales, but newly con­structed homes are in­creas­ingly a tough sell. There is 7.1 months’ sup­ply of new homes on the mar­ket, the high­est level since March 2011. Sales of ex­ist­ing homes haven’t fared any bet­ter, fall­ing for six straight months. The Fed­eral Re­serve has been rais­ing short-term rates to cool U.S. eco­nomic ex­pan­sion, and is ex­pected to raise rates for a fourth time this year in De­cem­ber. Econ­o­mists ex­pect at least two fur­ther hikes next year.

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