Mortgage rates jumped above 4% for the first time this year, potentially dampening the rebound in the homebuilder sector and related exchange traded funds.
The average rate on a 30-year, fixed-rate mortgage debt security rose to 4.04% from 3.87% for the week ended Thursday, reports Joe Light for the Wall Street Journal.
Bond yields have been inched higher over the past few weeks after yields on benchmark 10-year Treasury notes rose over 50 basis points to 2.38% since the mid-April low. Fueling the recent rise in yields, a number of positive economic data, such as the improved jobs openings reported earlier this week, added to speculation that the Federal Reserve could hike short-term interest rates later this year for the first time since 2006.
The recent jump in mortgage rates was the quickest since 2013, mirroring the one-week advance in May 2013 when the Fed hinted at terminating its bond-purchasing program.
Some market observers are worried that the rising mortgage rates could dissuade borrowers to move into new homes.
“Most people feel that rates are going back up to 5% or higher,” Guy Cecala, publisher of Inside Mortgage Finance, said in the WSJ article. “It’s a question of how fast.”
In a higher rate environment, home affordability is diminished and there is less incentive for renters to purchase a new home. Additionally, the more expensive mortgage rates may scare away current homeowners who are thinking about upgrading to a bigger, more expensive home. [Factors That Are Holding Back Housing, Homebuilder ETFs]
On the other hand, housing industry experts also argue that higher rates reflect an improving economy and wage growth, which could also help the housing market in the long run.
“As long as you are in a period of time where rising rates are remotely reflected to increased levels of economic activity and people feeling better, then that rising rate environment is neutral to actually a positive because it’s typically reflective of overall economic activity being better,” Bruce Thompson, chief financial officer of Bank of America Corp., said.
SPDR S&P Homebuilders ETF
For more information on the housing market, visit our homebuilders category.
Max Chen contributed to this article.
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