This article was originally published on ETFTrends.com.
After the sharp sell-off on Wednesday, home construction stocks and homebuilder sector-related exchange traded funds were among the few areas of strength Thursday in response to the fall in mortgage rates.
Homebuilders have been under pressure as housing affordability concerns weighed on the sector, specially in recent months as mortgage rates and home prices continued to push higher. However, home construction stocks were bucking the broader sell-off trend Thursday as mortgage rates retreated in face of rising market volatility and increased demand for safe-haven, long-term debt.
According to the latest Freddie Mac data, the 30-year fixed-rate average slipped to a two-month low of 4.75% with an average 0.5 point, or fees paid to a lender equal to 1% of a loan amount, The Washington Post reports. In contrast, it was 4.81% a week ago and 3.94% a year ago.
Safe-haven demand has been pushing up bond prices and dragging on yields. For example, the benchmark yields on 10-year Treasuries dipped below the 3% level this week for the first time in almost two months.
"Mortgage rates ticked lower this week as trade negotiations sparked stock market fluctuations and caused investors to flock to the certainty of Treasuries,” Danielle Hale, chief economist at Realtor.com, told The Washington Post. “Looking forward, as markets interpret [Federal Reserve] Chairman [Jerome] Powell's speech last week as an indicator of fewer rate hikes than previously expected, mortgage rates are likely to see less upward pressure to adjust ahead of anticipated hikes.”
However, Hale warned that the upcoming Friday employment report could affect mortgage rates ahead as market watchers will be closely watching the Federal Reserve's reaction on U.S. economy.
“While a low reading on job or wage gains is ordinarily interpreted as bad news for the economy, at this stage in the cycle, a lower reading would suggest that the Fed is relatively closer to neutral and may not need to hike as much as otherwise expected,” Hale added. “A strong reading on jobs or wage gains could lead bond rates, including mortgage rates, to spike higher as investors expect a data-dependent Fed to continue gradual rate hikes."
For more information on the housing market, visit our homebuilders category.
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