(Reuters) - U.S. home builder confidence edged up in September as mortgage rates fell, breaking four months of consecutive declines, but remained at relatively low levels as rising costs continued to impede construction.
The NAHB/Wells Fargo Housing Market Index of builder confidence rose to 41 this month from 39 in August, the National Association of Home Builders said on Tuesday. A Reuters poll showed economists expected the outlook to increase to 40 this month.
It was the first positive view of future home sales since May. The Federal Reserve is set to begin a rate-cutting cycle at the conclusion of its policy meeting on Wednesday.
The central bank drove up interest rates between 2022 and 2023 to the 5.25%-5.50% range to bring down high inflation, causing a slowdown in the housing market, but mortgage rates have been falling as the Fed telegraphed rate reductions.
The average 30-year fixed rate mortgage rate recently declined to 6.20% according to Freddie Mac, from a high of nearly 8% last October.
Fed rate cuts "will produce downward pressure on mortgage interest rates and also lower the interest rates on land development and home construction business loans," NAHB Chief Economist Robert Dietz said in a statement. "Lowering the cost of construction is critical to confront persistent challenges for housing affordability."
Data earlier this month showed that U.S. construction spending fell more than expected in July as increased supply weighed on single-family homebuilding. NAHB also cited more competition among builders from rising housing inventory as a potential headwind.
However, sentiment on sales expectations in the next six months rose four points to 53 in September from the prior month. The easing of mortgage rates also allowed builders to hold off on home price reductions. The share of builders cutting prices fell this month for the first time since April, while the average price concession was 5%, the first time it has been below 6% since July 2022.