U.S. home builder sentiment unexpectedly declined in June to the lowest level this year as mortgage rates near 7% limited prospective-buyer interest and weighed on the demand outlook.

The National Association of Home Builders/Wells Fargo index of housing market conditions fell by 2 points to 43. This month’s reading trailed all economists’ estimates in a Bloomberg survey, which had a median forecast of 46.

A measure of the sales outlook over the next six months dropped 4 points to 47 this month. That followed a 9-point decline in May that was the largest since October 2022. The prospective-buyer traffic gauge and the NAHB index of current sales both dropped to the lowest level this year.

“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” Carl Harris, NAHB chairman and builder from Kansas, said in a statement. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”

At the same time, the industry and prospective buyers may soon find some relief from high borrowing costs. Separate figures Wednesday showed the average rate last week on a 30-year fixed mortgage eased below 7% for the first time since March.

Mortgage rates move in tandem with Treasury yields, which also declined notably last week as recent data showed a broad cooling in inflationary pressures. That prompted traders to boost bets the Federal Reserve is in a better position to move ahead with interest-rate cuts, possibly as soon as September.

Cheaper financing costs have the potential to blunt some of the impact from elevated prices in the resale market.

This month, 29% of builders reported cutting home prices, the largest share since January, according to the NAHB survey. The average price reduction held steady at 6% for the 12th straight month. The share using sales incentives increased to 61% from a May reading of 59%.

Builder sentiment fell in the Midwest and South, while improving slightly in the West and Northeast.

This article was provided by Bloomberg News.