NEW YORK Fears that higher home mortgage rates this year will keep buyers away and hit home sales could be overblown.Home prices are expected to rise at their slowest pace in six years as affordability an industry measure based on income and home prices is expected to hit its lowest since the recession.This may hurt margins at homebuilders such as Lennar Corp and PulteGroup Inc, but a pick-up in volumes as buyers slowly return to the market is expected to offset losses.PulteGroup said in January it expected 2017 gross margin to come in the low end of its forecast of 24.0-24.5 percent, partly due to an expected drop in affordability.Homebuilders are also keeping a tight lid on costs as they rein in home prices to attract buyers, analysts said.”Even in the face of slowing price growth, I think they’ll continue to see fairly good profitability,” said Alvaro Lacayo, an analyst at New York-based research firm Gabelli & Co.”Builders are more focused on controlling costs to better deal with slowing price growth.”U.S. home prices have risen steeply over the past four years amid ever-tightening supply and a shortage of skilled labor, crimping affordability for the average homebuyer.In December, the supply of houses on the market dropped to levels last seen in 1999.The 30-year fixed mortgage rate, which hovered around 3.77 percent just before the December 2016 Fed interest rate hike, has now risen to about 4.20 percent, according to Freddie Mac.Annual wage growth, meanwhile, has remained firmly below 3 percent, making it difficult for home buyers to save up for downpayments.All of this is expected to push down the Housing Affordability Index to 153 this year from 164.8 in 2016.”As rates go up, it is going to increase the monthly costs of servicing a mortgage which in turn means that potential home buyers are going to have to bid a smaller price when they buy homes,” said Robert Dietz, chief economist, National Association of Home Builders.
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