US inflation accelerates: real estate and homebuilder stocks fall on expectations of a Fed rate hike

Real estate market sales amid inflation

Shares of US real estate and homebuilding companies came under selling pressure on Wednesday as accelerating inflation strengthened expectations of a policy tightening by the Federal Reserve, Anadolu reports. Money markets have priced in a 25 basis point rate hike in December and are assessing the probability of a 50 basis point increase after headline and core inflation exceeded monthly forecasts.

Rising yields and pressure on homebuilders

US Treasury yields rose across the curve ahead of the Veterans Day holiday: the policy-sensitive two-year yield jumped 17 basis points to 4.75%, while the benchmark ten-year rose 13 points to 5%. Since mortgage rates typically follow the ten-year yield plus a risk premium, the rise in long-term yields increases pressure on consumer borrowing costs.

Who was hit hardest

Real estate investment trusts (REITs) are under pressure from rising borrowing costs, while shares of major homebuilders are falling amid high yields and deteriorating outlooks. According to the outlet, Lennar shares lost 5.4%, Meritage 4.4%, PulteGroup 3.9%, DR Horton 3.8%, and luxury homebuilder Toll Brothers 2.7%. Analysts note that elevated mortgage rates will reduce housing affordability and negatively affect new home sales across the country; the further movement of homebuilder stocks will depend on Fed decisions and the trajectory of the ten-year yield.

Mortgage debt keeps growing

Against this backdrop, the Federal Reserve Bank of New York's household debt report for the third quarter showed that the aggregate mortgage balance rose by $257 billion compared with the previous quarter and by $302 billion year over year, reaching $13.37 trillion. Thus, the rise in borrowing costs has coincided with a continued increase in household mortgage burdens — a combination that heightens the sector's sensitivity to future Fed decisions.