US homebuilder sentiment tumbles as high interest rates slow buyer traffic

US homebuilder sentiment soured in May for the first time in six months as high interest rates on home loans kept potential customers on the sidelines and more builders had to offer incentives to lure buyers, data out Wednesday showed.
 

The National Association of Home Builders/Wells Fargo Housing Market Index fell unexpectedly to 45 in May, the lowest since January, from 51 a month earlier. The reading was lower than all 30 estimates in a poll of economists by Reuters, which had a median expectation for 51.
 

NAHB measures of current sales, sales expectations for the next six months and traffic of potential buyers all fell.
 

According to the Mortgage Bankers Association, interest rates on a 30-year fixed rate mortgage have held above 7% since early April.

''A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter and this is acting as a drag on builder sentiment,'' said NAHB Chief Economist Robert Dietz. ''The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing.'' Data earlier on Wednesday from the Labor Department showed annual shelter inflation rates at their lowest in about two years.

A quarter of builders reported cutting prices to help sales in May, snapping four months of declines, and the use of some form of buyer incentives rose to 59% from 57% in April. The average price cut was 6%.