Bloomberg News

WASHINGTON - U.S. home builders' expectations declined in February to their lowest level in 21 months, a survey released Tuesday by the construction industry showed.

The National Association of Home Builders' housing market index dropped to 68, from 71 in January.

The last time the reading was below 70 was in May 1998, when it also was 68. The index reached an all-time high of 73 in November 1998.

The index is based on a survey that asks home builders to rate current sales of single-family homes and sales expectations for the next six months. The index runs from zero to 100, with a reading over 50 showing that more home builders see good conditions than see poor conditions.

The index "is still high relative to the long-term average, indicating builders see continued strength in the market for new homes," said association president Robert Mitchell, a builder in Rockville, Md. "Builders are undoubtedly tempering their sales expectations as a result of higher mortgage interest rates."

The index of single-family home sales fell to 76, from 80, the association said. The index of expected sales over the next six months dropped to 73, from 77 in January.

Traffic of prospective home buyers rose to 48, from 47.

Last year's 904,000 new-home sales broke the record of 886,000 sales set two years ago.

And applications for mortgages rose 6.5% in the week that ended Feb. 4 to its highest level in two months, according to a Mortgage Bankers Association of America survey.

Home building could slow down because of recent increases in mortgage rates, analysts say.

The average interest rate on a 30-year mortgage rose to 8.36% last week, its highest in three years, Freddie Mac said.

"Increasing mortgage rates are gradually, but inexorably, applying the brakes to the housing market," David Kresge, chief economist for Dun & Bradstreet, said in a monthly home building market report released last week.

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