(Bloomberg) -- Shares of U.S. homebuilders bounced back from 10 straight days of declines, the longest losing streak for the sector since 2002, riding the broader market's recovery to end up 3.7 percent.
After performing four times as well as the market last year, the homebuilders got walloped, nearly matching 2002's string of 11 consecutive days in the red. Borrowing costs spooked some investors, who worry the shares will decline as rising interest rates make housing more expensive.
An increase from 4 to 5 percent for a 30-year mortgage, for example, would drive up monthly bills by 12 percent. Right now, the average 30-year mortgage rate is 4.22 percent, its highest in about a year, according to data from Freddie Mac, and not far off from a four-year high of 4.33 percent. The 30-year mortgage rate tends to track the path of the 10-year Treasury yield, which is already at its highest level since January 2014.
The prospect of rising rates was one of the fears that drove the Dow Jones Industrial Average on Monday to its deepest single-day plunge in points ever. As buyers came on the scene Tuesday, the Dow, S&P 500 and Nasdaq all rebounded strongly and took the homebuilders with them.
The homebuilder slump (more or less foretold here) coincided Friday and Monday with the broader market's decline. But while the S&P 500 is still up 0.8 percent so far this year, the homebuilders are down 7.8 percent.
The losing streak was an overreaction, Alex Barron, an analyst with the Housing Research Center in El Paso, Texas, said late last week. Homebuilders have reported strong results, and his on-the-ground sources tell him some buyers are even speeding up their purchases to beat out further rate increases.
To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net.
To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, Peter Jeffrey, Christine Maurus
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