NORTH LAS VEGAS, Nev.—A year ago, business was booming for Touchstone Living Inc. The Nevada builder had a list of 639 qualified buyers who wanted homes in its development about 15 miles north of the Las Vegas Strip. Today, that list has shriveled to about 30. Many would-be buyers are unable to qualify for loans since mortgage rates have surged to 6.94%, their highest level since 2002 and more than double the rate of a year ago.

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