Homebuilder ETFs have been under pressure this summer on fears rising mortgage rates could curb demand in the U.S. housing market.
Bears got some more ammunition on Wednesday following a report that pending home sales fell 1.3% in July.
“The modest decline in sales is not yet concerning, and contract activity remains elevated,” said Lawrence Yun, chief economist at the National Association of Realtors. “However, higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West.”
Separately, the Mortgage Bankers Association on Wednesday said mortgage applications fell for the third straight week. The average interest rate for 30-year fixed-rate mortgages rose to 4.80%, the highest rate since April 2011.
The S&P/Case-Shiller Home Price Index released earlier this week showed home prices rose in June, although the pace of price increases is slowing.
With mortgage rates rising, “home buyers may be discouraged and sharp [price]increases may be dampened,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.
Last week, a report on July new-home sales was much weaker than expected. [Homebuilder ETFs Down Sharply on New-Home Sales Miss]
The July new-home sales data “may mark an ‘uh-oh’ kind of moment for the housing recovery,” said Mark Vitner, an economist at Wells Fargo Securities, in an Associated Press report.
“We’ve been spoiled by low rates,” added Greg McBride, senior financial analyst at Bankrate.com. “People are gnashing their teeth now over a rate we had never seen four years ago.”
The iShares US Home Construction (NYSEArca: ITB) and SPDR S&P Homebuilders (NYSEArca: XHB) are down 18.6% and 9.7%, respectively, the past three months, according to Morningstar.
Full disclosure: Tom Lydon’s clients own XHB.
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