ETFs tracking homebuilders and related housing stocks were selling off Friday after a report on July new-home sales came in much lower than expected.

The iShares US Home Construction (NYSEArca: ITB) and SPDR S&P Homebuilders (NYSEArca: XHB) were down 3% and 2%, respectively.

The Commerce Department said U.S. new-home sales dropped 13.4% to a seasonally adjusted annual rate of 394,000 in July, the lowest rate since October, MarketWatch reports. Economists had expected sales of 485,000.

The miss is notable because the housing market rebound is seen as a key driver of the economic recovery.

Builder ETFs have been weak recently as mortgage rates rise along with Treasury yields. [Homebuilder ETF in Bear Market on Rates, Falling Mortgage Applications]

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