Homebuilder ETFs are trailing the S&P 500 so far this year after a monster rally in 2012. The sector funds anticipated improved housing data but now they’re faltering as mortgage rates jump and threaten to hit demand for homes.
The iShares US Home Construction ETF (NYSEArca: ITB) is up 4.1% year to date compared with a gain of 12.4% for the S&P 500, according to Morningstar data. Builders and related housing stocks have been weak lately with ITB down about 13% for the trailing month. The housing ETF rallied nearly 80% in 2012.
SPDR S&P Homebuilders ETF (NYSEArca: XHB) is another ETF for the sector.
The funds got a boost earlier this week on data revealing upbeat new-home sales and rising house prices. [Builder ETFs Higher]
However, Zillow on Tuesday reported that 30-year fixed mortgage rates surged 50 basis points in the latest week to 4.38%.
“Last week rates spiked up to levels not seen since July 2011 after Federal Reserve Chairman, Ben Bernanke reiterated the Fed’s commitment to scale back its stimulus program later this year,” said Erin Lantz, director of Zillow Mortgage Marketplace. “This coming week, we expect rates will be volatile as the market recalibrates and determines whether we’ve reached a new plateau near 4.5% or whether this week’s rate spike was an overreaction that warrants a downward adjustment.”
Some real estate agents argue that rising mortgage rates could spur some undecided home buyers to act before rates rise even more.
Yet, if 30-year-fixed rates climb above 4.5% and stay there, some buyers will be priced out of the home market, Keith Gumbinger, HSH.com vice president, told USA Today.
“If rates hold at these levels, there definitely will be an impact on home sales,” Gumbinger said in the report.
iShares US Home Construction
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.