Homebuilder stocks had one of their best days in months on Tuesday. By Wednesday morning, the mortgage data served a cold shower.
The Mortgage Bankers Association (MBA) reported that the average 30-year fixed mortgage rate had risen to 7.12% in the week ending Sept. 18.
The iShares U.S. Home Construction ETF (NYSE:ITB) fell 1.36% in early trading on Wednesday, after gaining 3.2% on Tuesday.
Mortgage Rates Hit Highest Level Since 2024
The average contract rate on a 30-year fixed mortgage is now at its highest level since May 2024.
Mortgage rates have now risen by more than 100 basis points since the Iran war began in late February.
On a $400,000 loan, a one-point rise in the rate adds roughly $265 to the monthly payment.
Total mortgage applications fell 1.5%, the third weekly decline in a row. Refinancing applications dropped 2.6%, and purchase applications fell 0.8%.
Refinance demand is now 62% lower than a year ago and at its weakest since February 2025.
Purchase applications are down 11% from a year earlier.
Meanwhile, borrowers are taking more risk.
Some buyers are switching to adjustable-rate mortgages (ARMs). An ARM carries a lower starting rate that can reset higher later, so the borrower takes on the risk that rates keep rising.
“With fixed rates much higher, more borrowers opted for ARMs, with the ARM share reaching 9.8%, as rates for 5/1 ARMs were more than a percentage point lower than those for fixed rate loans,” said Mike Fratantoni, senior vice president and chief economist at the MBA.
Why Mortgage Rates Follow the 30-Year Treasury
Lenders price 30-year mortgages off the 30-year Treasury yield, which is the interest rate the government pays to borrow for 30 years.
When that yield rises, lenders’ funding costs rise. As a result, they charge home buyers more.
The 30-year yield rose 2 basis points to 5.32% on Wednesday morning. It hit 5.42% on Sept. 10, its highest level since 2007.
Earlier this month, the Federal Reserve raised rates by 25 basis points and signaled more hikes could follow.
Several other Fed officials have also sounded hawkish, which strengthened expectations of further tightening.
Yet, economists indicate that the bulk of the increase in long-dated Treasury yields reflects inflation and debt-related concerns in Washington.
Who Feels Higher Rates Most
Homebuilders feel the effect first. Higher rates shrink the pool of buyers who can qualify for a loan. For this reason, builders often pay to lower buyers’ rates, which cuts into their profit margins.
Mortgage lenders depend on loan volume. Fewer refinancings mean fewer loans to sell.
Home-improvement retailers and real estate brokers depend on housing turnover.
Fewer home sales mean fewer renovations and fewer commissions.
5 Housing Stocks Taking the Hit
The selling on Wednesday morning is concentrated in the stocks most exposed to new loans and first-time buyers. Meanwhile, the SPDR S&P 500 ETF Trust (NYSE:SPY) is down 0.32%.
1. KB Home (NYSE:KBH) is down 0.82% at $48.24. It is the biggest decline in the group. KB Home builds mostly entry-level homes, so its buyers are the ones most likely to stop qualifying for a loan when rates rise. The stock is 28.1% below its February high.
2. Rocket Companies Inc. (NYSE:RKT) is down 2.16% at $12.46. Rocket Companies earns money on every mortgage it makes, and refinance demand is now 62% lower than a year ago. The stock hit a 52-week low on Monday and trades 47.7% below its January high.
3. Compass Inc. (NYSE:COMP) is down 2.95% at $9.39, after falling 4.5% on Tuesday. As a real estate broker, Compass earns commissions only when homes change hands. As a result, fewer purchase applications mean fewer deals.
4. UWM Holdings Corp. (NYSE:UWMC) is down 2.75% at $1.24. Like Rocket Companies, UWM Holdings depends on loan volume. The stock is 80.7% below its high from a year ago.
5. Lennar Corp. (NYSE:LEN) is down 0.41% at $82.70, after jumping 6.4% on Tuesday. Lennar touched a 52-week low of $75.70 on Sept. 18. It remains 37.9% below its December high.
Photo: © THOMAS BENDER/HERALD-TRIBUNE / USA TODAY NETWORK via Imagn
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