Stocks lose earlier gains as bond yields rise

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Homebuilder shares fell on Monday after the housing sentiment index snapped a four-month losing streak amid higher mortgage rates.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) stood at 51 in April, unchanged from March. Certainly, any number over 50 indicates that more builders view conditions as better than worse.

“April’s flat reading suggests demand is likely to remain strong, but buyers are hesitant until they can better gauge where interest rates will remain,” NAHB chief economist Robert Dietz said in a statement. Which way are you going?”

Lennar (LEN), Pulte (PHM), and Toll Brothers (TOL) were all down more than 1% early morning, while the SPDR S&P Homebuilders ETF (XHB) was down 0.3%.

The stagnant confidence levels among builders underline how much potential buyers and sellers, already struggling with high home prices and limited housing stock, are holding out. It comes after a bigger-than-expected inflation print last week prompted investors to reduce the number of rate cuts this year to two, down from the average of three the Fed had projected at its March meeting.

Dietz said, “While the market is now adjusting to higher rates somewhat due to recent inflation readings, we still expect the Federal Reserve to announce future rate cuts later this year and mortgage “Rates will drop in the second half of 2024.”

Mortgage rates remain slightly higher than the beginning of the year, pushing borrowers over the edge as the spring home buying season begins. Freddie Mac reported that the average rate on a 30-year fixed mortgage increased to 6.88%, up from 6.82% last week.

In April, builders held back slightly from cutting home prices, with 22% of builders reporting doing so, down from 24% in March and 36% in December last year.

Meanwhile, the use of sales incentives declined from 60% in March to 57% in April.

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