8% Mortgage Rate Shock Hits US Construction Stocks

US Major Construction Stocks Fall 16% from July Peak

US mortgage rates have surged to around 8%, halting the rally in US construction stocks that had continued since the beginning of the year.

According to the New York stock market on the 30th, shares of the largest US homebuilders DR Horton, Lennar, and NVR have fallen more than 16% since hitting their peak in July. PulteGroup's stock price surged 86% from the start of the year through August, then dropped about 15% afterward.

The shift to weakness in US construction stocks is a result of the sharp rise in mortgage rates. Prospective homebuyers are postponing purchases due to the burden of interest payments. Additionally, existing homeowners are reluctant to put their homes on the market because they cannot obtain loans at such low rates as currently available when refinancing.

According to Freddie Mac, a US mortgage company, the average 30-year fixed mortgage rate rose from 6.48% at the beginning of the year to 7.79% last week, the highest in 23 years. The average 15-year fixed mortgage rate has also increased to 7.03%. Mortgage rates soared as the US 10-year Treasury yield, a global bond benchmark, surged to around 4.8%. The 10-year US Treasury yield even broke the 5% barrier in mid-month. Consequently, last week’s applications for 30-year fixed-rate mortgages fell to the lowest level since 1995.

Sam Khater, Chief Economist at Freddie Mac, said, "Rates have risen by 2 percentage points this year alone," adding, "Purchasing activity has virtually stalled, and many people find it difficult to afford such high rates."

The housing construction market is also slowing down in a chain reaction. Although single-family housing starts in September increased by 8.6% compared to a year ago, experts believe this trend will be temporary.

Jeff Tucker, Chief Economist at Zillow, analyzed, "The housing market has rapidly slowed over the past month and a half," and "Demand for new homes has also begun to decline."

Oren Klachkin, Financial Markets Economist at Nationwide, a UK mortgage specialist financial company, said, "We do not believe this rebound in housing activity will continue," diagnosing that "If demand remains weak, incentives for builders to start construction will disappear." He added, "It will be difficult to confirm a sustained rebound in the housing market until credit tightening eases and economic viability improves."