While homebuilder exchange traded funds have been rallying on a wave of new home buyers, the housing market and construction sector could begin to cool with mortgage rates spiking back up.
Over the past three months, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) increased 14.0% and the iShares U.S. Home Construction ETF (NYSEArca: ITB) advanced 10.4%. Year-to-date, XHB rose 7.1% and ITB gained 6.9%. [Low Mortgage Rates Bolster Homebuilder ETFs]
Despite a typically slow season for housing, first-time buyers have shown renewed interest in the market, reports Clea Benson for Bloomberg.
Fueling activity in the housing market, more Americans are borrowing to finance new homes. For instance, borrowers who made down payments of 5% or less on home purchases accounted for 39% of the market in the fourth quarter, up from 37% for the same period year-over-year.
The pick-up in financing has also been aided by changes in Freddie Mac and Fannie Mae, which lowered down payments on loans to 3% in December from 5%.
However, with interest rates ticking higher – yields on benchmark 10-year Treasuries are back up to 2.08% from 1.67% at the start of February, new home purchases may begin to slow.
Mortgage rates have increased to their highest level of the year, and loan applications plunged 13.2% for the week ended Friday, reports Dian Olick for CNBC. Mortgage applications to purchase a home also fell 7% for the week.