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.

SEE MORE: Hone in on Homebuilders ETFs

According to CNBC: “Second, the XHB is also strong from a valuation standpoint. “Valuation is 16 times forward earnings versus 18 for the S&P 500, and we’re looking at an average earnings growth of 26 percent,” said Erin Gibbs, chief investment officer at S&P Global. With Gibbs pointing out that the S&P 500’s earnings per share growth is at 5 percent, this implies that investors could get higher growth for cheaper.

For more information on the housing market, visit our homebuilders category.

SPDR S&P Homebuilders ETF