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.
Conversely, 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. Still, some market observers are worried that the rising mortgage rates could dissuade borrowers to move into new homes.
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“Aside from a potential post-Fed slip, the speculator could also be betting on familiar resistance for XHB. Shares of the homebuilder ETF are within a chip-shot of their August 2015 all-time high of $39.22, and the $37-$39 neighborhood has been a speed bump for XHB for more than two years. Further, the overhead $40-$41 area represents a 50% premium to XHB’s 2016 lows near $27,” according to Schaeffer’s.
For more information on the housing sector, visit our homebuilders category.