4 Homebuilding Stocks to Avoid as Mortgage Rates Rise Over 3% By StockNews

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© Reuters. 4 Homebuilding Stocks to Avoid as Mortgage Rates Rise Over 3%

Rising mortgage rates have caused a decline in refinancing and new loan originations, which should dampen the homebuilding industry’s growth. In addition, supply chain constraints are expected to muddy the industry’s near-term prospects. Therefore, we think homebuilding stocks D.H Horton (DHI), NVR Inc . (NYSE:), Toll Brothers (NYSE:), and KB Home (NYSE:) are best avoided now. Read on.Mortgage rates hit a three-month high last week as bond markets responded to the Federal Reserve’s statement that it would “soon” start reducing its fixed-asset purchases. The average contract interest rate jumped to 3.14% from 3.10% for 30-year fixed-rate mortgages, the highest rate since July.

Mortgage applications to purchase a home declined 13% year-over-year, negatively impacting companies operating in the housing business. Furthermore, impending Fed tapering moves, potential changes to monetary policy, and ongoing supply chain constraints are expected to dampen the homebuilding industry’s near-term prospects.

Given the industry’s gloomy growth prospects, we believe homebuilding stocks D.H Horton Inc. (DHI), NVR Inc. (NVR), Toll Brothers Inc. (TOL), and KB Home (KBH) could suffer a downtrend in the near term. So, these stocks are best avoided now.

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