Homebuilder sector-related exchange traded funds could continue to be pressured as rising interest rates and elevated mortgage rates are already affecting U.S. home sales.

Year-to-date, the iShares U.S. Home Construction ETF (NYSEArca: ITB) decreased 19.3, SPDR S&P Homebuilders ETF (NYSEArca: XHB) declined 17.3%, Invesco Dynamic Building & Construction ETF (NYSEArca: PKB) fell 14.4% and Hoya Capital Housing ETF (HOMZ) was down 10.3%.

Existing-home sales dropped 7.2% in February month-over-month to a seasonally adjusted annual rate of 6.02 million, the largest decline since February 2021, the Wall Street Journal reports

The ongoing shortage of houses available on the market and double-digit price growth have squeezed out first-time buyers. Meanwhile, potential sellers who are reluctant to buy into a new home in such a pricey market are now opting to stay put. Consequently, some buyers are stepping away from the market altogether due to the relentless bidding wars and rising home prices.

“Not only is the mortgage rate rising, which now puts a greater focus on people’s budget limits, but the lack of inventory is ongoing,” Lawrence Yun, NAR’s chief economist, told the WSJ. “As a buyer, it is still a struggle to get into the market.”

Meanwhile, mortgage rates broke above 4% for the first time in almost three years, further contributing to a slowdown in sales.

Contracts to buy previously owned houses, a gauge of home sales, have already declined for three consecutive months through January, Reuters reports.

“It will take a sharper drop in sales to bring the market back into balance and allow prices to increase at a more modest pace,” David Berson, chief economist at Nationwide, told Reuters.

Looking ahead, mortgage rates are likely to rise even further after the Federal Reserve on Wednesday hiked interest rates for the first time in three years and signaled it will be taking aggressive measures to combat inflationary pressures.

“Homebuyers have likely missed their opportunity to lock in ultra-low mortgage rates,” Mark Vitner, a senior economist at Wells Fargo, told Reuters.

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