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Homebuilder Stocks Tank as Buyers Agonize Over Rising Rates

Stocks in this article: PHM TOL DHI LEN

NEW YORK ( TheStreet) -- U.S. homebuilder stocks were taking a beating Thursday as Treasury yields spiked to their highest level since August 2011 amid concerns increasing mortgage rates will slow the country's housing recovery. PulteGroup (PHM) was the biggest of the losers in the S&P 500, plummeting 7.95% to $19.11. Toll Brothers (TOL) was slumping by 5.64% to $31.27. D.R. Horton ( DHI) was giving up more than 7% to $21.76. Lennar (LEN) was shedding 5.42% to $35.80.

Jed Kolko, the San Francisco Bay Area chief economist for real estate website Trulia said that homebuyers or refinancers who wanted to lock in the best mortgage rates should have done so a few months ago.

"Rates were lowest a few months ago," Kolko said over the phone. Now, "mortgage rates are ripe for the rise." He said that even if there is some volatility in mortgage rates, they are likely to keep rising when the Fed pulls back and the economy keeps strengthening.

Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank could start reducing its $85 billion a month bond-buying economic stimulus program later this year, and outlined criteria which will determine when the bank begins to reduce the size and scope of its bond buying program.

As questions about the housing market recovery grew, the plunge in homebuilder stocks Thursday steepened. An increase in housing prices combined with a rise in mortgages rates could make home buying more expensive in the coming months, Kolko said. However, the Trulia chief economist said buying will likely still be much cheaper than renting in most markets across the U.S. in six to 12 months.

10-year Treasury yields rose to 2.415% in early trading.

The global market selloff accelerated Thursday even after a better-than-expected May existing home sales report Thursday, as it served as a reminder that the housing market could become less favorable in the coming months.

"The surge in existing home sales may be attributed to a rush to lock in low yields," Peter Cardillo, chief market economist at Rockwell Global Capital in Manhattan said in an email.

Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.

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