Homebuilders approach bear market on rising mortgage rates

  • Article by: PRASHANT GOPAL , Bloomberg News
  • Updated: June 24, 2013 - 8:04 PM

Investors appear concerned that an expected increase in mortgage rates would limit sales of new homes.

 

Shares of U.S. homebuilders fell for a fourth day, approaching a bear market, as concern mounted that rising mortgage rates could restrain a revival in the housing market.

The 11-member Standard & Poor’s Supercomposite Homebuilding Index slid 1 percent Monday to the lowest level since the end of 2012. It has fallen 19.6 percent from a May 14 peak, close to the 20 percent threshold considered to be a bear market.

The prospect that the Federal Reserve may slow bond purchases has stoked investor concern that mortgage rates will rise and limit new-home sales, which have jumped as inventories for existing properties tightened. Housing shares may have climbed too far after a rally that sent the S&P builder gauge up 84 percent last year, more than six times the gain in the S&P 500 index, said Vicki Bryan, an analyst at Gimme Credit.

“Investors got way ahead of themselves in estimating performance results for the sector, perhaps by years in the case of some builders,” she said in a telephone interview Monday from New York. “They’ve already sapped most of the logical upside. That only leaves room for disappointment.”

D.R. Horton Inc. and PulteGroup Inc., the two largest U.S. homebuilders, have led the decline, with each losing 24 percent. Ryland Group Inc. has fallen 23 percent, while KB Home has slumped 22 percent.

The average rate for a 30-year fixed mortgage jumped to 3.93 percent last week from 3.35 percent in early May, according to Freddie Mac. Borrowing costs probably will rise further after Fed Chairman Ben Bernanke said last week that policymakers may slow bond purchases this year amid signs of an improving economy. Wells Fargo & Co., the largest U.S. home lender, was offering a 30-year mortgage at 4.75 percent Monday, according to its website.

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