The iShares US Home Construction ETF (NYSEArca: ITB) is down 7% this week with homebuilder stocks hit hard on disappointing quarterly earnings and lingering worries over the impact of the recent spike in mortgage rates.

ITB fell hard for the second straight session Thursday after earnings from bellwethers PulteGroup (NYSE: PHM) and DR Horton (NYSEArca: DHI). Both stocks were down more than 8%.

During a conference call Thursday, DR Horton CEO Donald Tomnitz said home buyers are “a little bit shocked or disturbed by the fact that rates have moved up from where they were.” He added that over the long term, demand is driven more by economic indicators and those trends still tend to be positive in most of the homebuilder’s markets. [Rising Mortgage Rates Could Raze Homebuilder ETFs]

Mortgage rates have pulled back the past couple weeks after surging to their highest levels in more than a year. Rates on 30-year fixed mortgages averaged 4.31% in the latest week, up from 3.49% a year ago, The Washington Post reports, citing Freddie Mac data.

Homebuilder ETFs are falling this week after reports on new and existing home sales. SPDR S&P Homebuilders ETF (NYSEArca: XHB) is off about 4% so far this week.

“A barrage of monthly housing data has been released in the past week, with weaker-than-expected existing-home sales and housing-construction data raising concern but better-than-expected new-home sales and homebuilder sentiment providing continued optimism that the strong housing recovery will continue,” said Morningstar analyst James Krapfel in a note.

“We believe the extent of the recent rise in mortgage rates could give some pause to existing homes and slow the pace of torrid housing price gains, but we expect housing production to continue to lift strongly off their depths given the dearth of housing inventory on the market,” he added.

iShares US Home Construction ETF

Full disclosure: Tom Lydon’s clients own XHB.

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