Home Builder Stocks Head Down

It shouldn’t be any surprise that home builder stocks are heading toward the basement. After several months of economic data showing that home sales are slowing, and that home inventories are building, the proof is indisputable, that the Fed’s obsession with raising rates because they want to have higher rates, has begun to hit the economy.

The first victims are home builders who are directly impacted by potential home buyers finding out they can afford less, and less home, with each interest rate increase.

home builder stock
New homes, and old homes are more expensive thanks to higher interest rates.

While most mortgages actually follow the 10-year Treasury yield, the Fed’s steady push on the short end of the curve has provided some rise in that benchmark. The Federal Housing Finance Agency showed a national average adjustable rate mortgage of just 4.08% at the beginning of the year. The latest data, for October shows 4.75%. That might not sound like a lot, but for a mortgage that makes a big payment difference.

A $400,000 mortgage for 30-years at 4.08% has a $1,921 payment.

The same mortgage at 4.75% rocks a $2,087 payment. For a home buyer reaching for a dream home, $160 a month might be the difference between buying a cheaper home, or even worse for new home builders, forgoing high-profit upgrades. Add it up, and home builders’ futures look less bright than through 2018.

About the only thing that could make this worse, is a government shutdown siphoning off dollars from an already fragile economy…

Uh oh.

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