ISTANBUL

High mortgage rates act as a drag on builder confidence in the US, according to a recent report.

"Mortgage rates that continue to hover in the 7% range along with elevated construction financing costs continue to put a damper on builder sentiment," said the report Monday by a homebuilders' group.

The National Association of Home Builders/Wells Fargo Housing Market Index came in at 43 in June, down two points from 45 in May.

While above 50 is considered positive for the housing sector, the index measures sentiment among homebuilders and is considered an important indicator for housing investment and consumer spending on appliances and furnishings, which affect the overall economy.

"Persistently high mortgage rates are keeping many prospective buyers on the sidelines," Carl Harris, chair of the homebuilders' group, 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."

Robert Dietz, the association's chief economist, said the housing market is in an "unusual situation" because of a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-on-year rate, and that is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%.

"The best way to bring down shelter inflation and push the overall inflation rate down to the 2% range is to increase the nation’s housing supply," he said. "A more favorable interest rate environment for construction and development loans would help to achieve this aim."