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

Back in May, the market rate for 30-year fixed mortgages was approximately 3.35%. The payment for a potential buyer, assuming a 30-year loan, comes to $441. That same loan at today’s rates — about 4.4% — would be $605. That is a 37% increase in monthly payment.

If rates continue to rise over the next 6 to 18 months, which most analysts think will happen, the impact on the affordability of housing will become even more significant.

Assume that same loan eventually comes with a 5.5% interest rate. That monthly payment would be $672. That’s a 52% increase in the monthly payment, driven only by changing interest rates. And 5.5% is still low by historical standards.

The takeaway
For consumers, this rise in the cost of a mortgage could deter many potential buyers. For many, it will make buying a new home too expensive and lead them to purchase an existing, less expensive home. The result is fewer buyers in the market for a new home.

For national homebuilders like KB Home (NYSE:KBH), D.R. Horton, Inc. (NYSE:DHI), Lennar Corporation (NYSE:LEN), PulteGroup, Inc. (NYSE:PHM), and M.D.C. Holdings, Inc. (NYSE:MDC), who produce new homes, rising rates is bad news for business.

Some value investors may claim that now is the time to buy, as the market has factored in the impact of rising rates already this summer. I disagree.

To me, these are five stocks to avoid. I think rates will continue to rise, and the full impact of this change has not yet worked its way into these stock’s prices. There’s still room for the stocks to sink, and I think the pain for shareholders will continue.

The article 5 Stocks to Sell Right Now originally appeared on Fool.com and is written by Jay Jenkins.

Fool contributor Jay Jenkins has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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