I am still on alert for a larger pullback in the market. The larger picture suggests the SPX will li...
Shares of homebuilders take a beating on rising mortgage rates
05/29/2013 6:39 pm EST
So why the drop on good news? Because there was bad news that, for today at least, trumped the good news. In May the average interest rate on a 30-year fixed mortgage backed by the Federal Housing Administration climbed to 3.59% from 3.35%, according to Freddie Mac. The average rate on a 30-year fixed rate mortgage with confirming loan balances increased to 3.9%, the highest rate since May 2012. The average rate on a jumbo loan increased to 4.07%
The fear, of course, is that higher mortgage rates will translate into fewer home sales.
From the perspective of those fears, the good news is backwards looking and the bad news is forward looking.
And before you off-handedly dismiss those fears please note that the total number of mortgage applications fell by 9% last week from the immediately prior week. Refinance applications fell for a third consecutive week, the Mortgage Bankers Association reported.
If you’re looking for sectors exposed to rising mortgage rates, don’t stop with homebuilders. Financial companies specializing in mortgage-backed securities have also been taking a beating as rising yields on this paper drive down prices. For example, a tranche of mortgage-backed securities that traded at $107 at its peak closed yesterday at $104. That has taken down the stocks of companies such as Annaly Capital Management (NLY) and American Capital Agency (AGNC). Annaly fell 3.47% today. American Capital Agency dropped a much smaller 0.04% today but that’s quite probably because American Capital is already down 20.7% from its April 30 close.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own positions in any company mentioned in this post as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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