D.R. Horton, Inc. (DHI), PulteGroup, Inc. (PHM): Are Mortgage Rates Finally Starting to Hit Housing?

Are higher mortgage rates starting to have a detrimental impact on the housing market? According to data released this morning by the National Association of Realtors, the answer may be yes.

The trade group announced today that pending home sales fell by 0.4% in June on a seasonally adjusted annual basis compared to May. On a year-over-year basis, the figure increased by 10.9%.

According to NAR chief economist Lawrence Yun, the explanation for the decline was twofold: “Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June,” Yun said. “The persistent lack of inventory also is contributing to lower contract signings.”

Yun went on to explain that, “There are some homebuyers who sign contracts with strong lender commitment letters, but have floating mortgage interest rates. Those rates can be locked as late as 10 to 14 days before closing, so some homebuyers may change their minds if the rate rises too much, which apparently happened with some sales scheduled to close in June.”

The housing market has been on a tear over the last year, but has more recently taken a bit of a breather. While the Commerce Department said that new home sales grew by 8.3% in May over April, the NAR noted last week that existing home sales slid by 1.1% in June compared to May.

In addition, shares of both D.R. Horton, Inc. (NYSE:DHI) and PulteGroup, Inc. (NYSE:PHM), the nation’s two largest homebuilders, plummeted last week after the companies reported earnings for the three months ended June 30. In Pulte’s case, net new orders for the second quarter came in at 4,885 homes, which equated to a decrease of 12% from the prior year. D.R. Horton, Inc. (NYSE:DHI), on the other hand, saw growth in all of its fundamental metrics but was nevertheless swept up in the concern triggered by PulteGroup, Inc. (NYSE:PHM)’s results.

The article Are Mortgage Rates Finally Starting to Hit Housing? originally appeared on Fool.com and is written by John Maxfield.

John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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