Pressures rise for homebuilders as rates hit 7-year high

Matt Ott, Associated Press

FILE - In this May 7, 2009 file photo, homes built by D.R. Horton Inc. are shown in Cahndler, Ariz. Major homebuilders are taking a beating on Wall Street as rising interest rates and home prices continue to keep potential buyers on the sidelines. Shares in leading U.S. homebuilder D.R. Horton have fallen more than 8 percent in Thursday, Nov. 8, 2018, morning trading while others in the sector saw declines between 4 percent and 6 percent. (AP Photo/Ross D. Franklin, File)

WASHINGTON (AP) -- Homebuilders took a beating Thursday as rising interest rates and home prices discourage potential buyers.

Mortgage buyer Freddie Mac said Thursday that the average rates on 30-year, fixed rate mortgages hit 4.94 percent, a 7-year high. The average rate a year ago was 3.9 percent.

Also Thursday, 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 around 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.