KB Home (KBH), D.R. Horton, Inc. (DHI), Lennar Corporation (LEN): Stocks to Sell Right Now

Page 1 of 2

Over the summer, rising interest rates have been one of the most influential trends in the markets. In my view, that trend will continue, and as such, I have identified five stocks to avoid as the trend plays out.

Just take a look at this graph of mortgage interest rates year to date. The leap in rates from May to August is just staggering.

US 30 Year Mortgage Rate Chart

US 30 Year Mortgage Rate data by YCharts.

Why are rates rising?
Rates are rising, simply put, because the market is anticipating an end to the quantitative easing, bond buying, and other monetary stimulus policies currently deployed by the Federal Reserve. The sudden spike we see beginning in late May is a result of statements made by Fed Chairman Ben Bernanke, widely interpreted to mean that the Fed would be ending its programs sooner rather than later.

KB Home (NYSE:KBH)The mortgage industry sees the most obvious impact from rising rates. You can read more about that here. Put simply, banks sell products whose price depends on interest rates. Higher rates equal higher prices. Higher prices means fewer individuals or business will be willing to buy.

Head for the hills
But if you take a step back, the fate of interest rates also has a big impact on another industry: homebuilders.

The relationship can be seen in the chart below, which compares the percentage change in mortgage rates year to date with the stock price performance of five homebuilders. You can see that in May, right at the moment 30-year interest rates begin to skyrocket, these stocks began a nose dive, moving down essentially in unison between 17% and 26%.

KBH Chart

KBH data by YCharts.

The reason is simple enough: The cost to purchase a home for most Americans is more than just the list price. It also includes the interest rate on the mortgage used to buy the house.

Page 1 of 2

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click Here to Read Comments
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!