Homebuilder shares fell Monday as investors worried about the negative impact that higher mortgage rates, economic uncertainty and the federal shutdown may have on their sales.
Low mortgages rates and pent-up demand for homes have helped propel the housing market this year. Demand remains strong in some areas of the country, but fall is typically a sleepy time for sales and signed contracts have already started to decline nationally.
And the federal government's looming deadline to reach an agreement that would let it avoid defaulting on its debt has heightened the nation's sense of economic uncertainty. A default could potentially lead to a jump in interest — and mortgage — rates, along with other serious economic consequences. The National Association of Realtors' President Gary Thomas told Congress that a default would quickly erase any gains in the still-young housing recovery.
Higher mortgage rates could dissuade potential buyers. The average rate for a 30-year loan is at 4.23 percent, according to Freddie Mac's latest count. That is well below historical standards, but is a full percentage point above where it was in May.
The current federal shutdown has also further complicated matters.
Some borrowers are finding it harder to close on their mortgages. Lenders are having trouble confirming applicants' income tax returns and Social Security data due to government agency closures. Furloughs at the Federal Housing Administration are slowing the agency's processing of loans for some low- to moderate-income borrowers and first-time homebuyers.
A Wall Street Journal article Monday showed how some homebuilders are even offering incentives, such as free appliances or blinds, to keep their sales momentum going. Incentives can generate sales, but can eat into profitability.
As the broader market edged higher Monday, here's a look at how homebuilder shares were faring in afternoon trading:
Beazer Homes USA Inc. fell 17 cents to $17.93
DR Horton Inc. shares fell 41 cents to $18.24
Hovnanian Enterprises Inc. fell 2 cents to $5.07
KB Home shares fell 37 cents to $16.62
Lennar Corp. shares fell 68 cents to $34.14
MDC Holdings Inc. shares fell 40 cents to $28.62
Toll Brothers Inc. shares fell 44 cents to $31.03
PulteGroup Inc. shares fell 23 cents to $15.88