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Home builder sentiment hits 11-year low

U.S. home builder sentiment sank to its lowest in more than a decade in June as rising interest rates made homes less affordable and inhibited speculation.
/ Source: Reuters

U.S. home builder sentiment sank to its lowest in more than a decade in June as rising interest rates made homes less affordable and inhibited speculation, according to an industry survey released Monday.

Sentiment among home builders fell 4 points to 42 in June from an upwardly revised 46 in May, the National Association of Home Builders said. The median from a Reuters survey of analysts forecasts was for the index to hit 45.

The Home Builders/Wells Fargo Housing Market Index was at its lowest since April 1995. The drop was most pronounced in the Northeast, where the regional index fell 7 points to 40, the NAHB said.

The index indicates a "reasonably orderly cooling-down" of the housing market, NAHB Chief Economist David Seiders said in a press release. New home sales are likely to fall 13 percent in 2006 from record levels last year, he said.

Seiders said downside risks to NAHB forecasts include the potential for "large numbers" of canceled contracts by speculators and if the Federal Reserve raises its target interest rate after an expected quarter-point increase later this month, he said. Cancellations of contracts are "pretty darn high" and moving higher, he told Reuters.

"This is the most interest rate-sensitive part of the economy so we're obviously very attuned to what the Fed is doing," he said. The NAHB has been petitioning the Fed through letters and communication with senior staff to break its cycle of rate increases, he said.

Home-builder KB Home on Friday said it expected its fiscal third- and fourth-quarter income to be well below Wall Street's forecasts because of a "challenging" housing market for the rest of year.

NAHB sub-indexes also fell to the lowest since 1995. The index gauging sales for the next six months fell 5 points to 50 and the index measuring traffic of prospective buyers declined 4 points to 29. The current sales index fell 3 points to 47.