Home-builder stocks take a broad beating as 10-year yield's breakout fuels demand concerns
By Tomi Kilgore
A jump in benchmark Treasury yields back above 4% for the first time in four months could crimp home affordability
The home-builder sector suffered a unanimous selloff Thursday, as a jump in Treasury yields on the back of strong jobs data sparked concerns that higher mortgage rates would hurt demand for new homes.
The iShares U.S. Home Construction exchange-traded fund (ITB) slumped 2.4% in afternoon trading Thursday, with all 48 of its equity components trading lower.
The ETF (ITB) has dropped 4% amid a three-day losing streak, which kicked off the day after it closed at a record $85.44 on June 30.
Among the ITB's more-active home-builder components, shares of D.R. Horton Inc. (DHI) shed 3.2%, KB Home (KBH) gave up 4.1%, PulteGroup (PHM) slid 2.5%, Lennar Corp. (LEN) lost 2.3% and Toll Brothers Inc. (TOL) were down 1%.
Among those in the ITB that provide materials that support the builders, Home Depot Inc.'s stock (HD) fell 2.4%, Builders FirstSource Inc. shares (BLDR) sank 4% and Lowe's Companies Inc. shares (LOW) declined 1.3%.
The selloff comes as the S&P 500 index shed 0.7%.
Meanwhile, the government chartered Federal Home Loan Mortgage Corp., known as Freddie Mac (FMCC), which helps support the U.S. housing finance system, said Thursday that the 30-year fixed-rate mortgage rate averaged 6.81% as of July 6, up from 6.71% a week ago and from 5.30% a year ago.
"This upward trend is being driven by a resilient economy, persistent inflation and a more hawkish tone from the Federal Reserve," said Freddie Mac Chief Economist Sam Khater. "These high rates combined with low inventory continue to price many potential home buyers out of the market."
Minutes from the Federal Reserve's last policy-setting meeting, released Wednesday, suggested more interest-rate increases were coming.
Also weighing on the ITB was a technical chart breakout by the benchmark 10-year Treasury yield , which is often used to set the levels of consumer loans, such as mortgages.
The yield rose 0.094 percentage points to 4.039%, on track for the first close above 4% since March 2, after data showing the private sector hired more than double the number of people expected in June. Read MarketWatch's daily "Bond Report" column.
Katie Stockton, technical analyst at Fairlead Strategies LLC, noted that, as well as rising above the "psychologically significant" 4% level, the 10-year yield has climbed above "trendline resistance" that could clear the path to reach 2022 highs.
The yield peaked at an intraday high of 4.333% on Oct. 21, 2022, which was the highest yield seen since November 2007.
Technician Dan Wantrobski at Janney concurred, saying the "technical breakouts" seen this week sets the next potential target and resistance zone up to 4.33%.
-Tomi Kilgore
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07-06-23 1517ET
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