ETF Trends
ETF Trends

The SPDR S&P Homebuilders ETF (NYSEArca: XHB) and the iShares U.S. Home Construction ETF (NYSEArca: ITB), the two largest exchange traded funds tracking homebuilders stocks, have not been much to boast about lately with ITB rising only modestly over the past month and XHB notching a small loss over the same period.

The index of builder confidence hovered above 60 in July and June, and it has remained positive for the past year. The positive reading is adds to a number of promising indicators in recent months. For instance, the National Association of Realtors said sales of existing homes in June surged to their highest since February 2007. [Home Sales Hit Eight-Year High, Boost Homebuilders ETFs]

However, the charts may be telling a story of vulnerability for funds such as XHB. Some market observers are worried that the rising mortgage rates could dissuade borrowers to move into new homes.

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. Making matters more concerning for XHB is that the ETF recently violated its 200-day moving average.

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