New-Home Sales Would Be Hurt Most If Fed Raises Rates

NEW YORK ( TheStreet) -- Despite the focus on the labor market, it's the housing sector that could suffer the most if the Federal Reserve raises rates.

Sales of new single-family houses declined 2.4% in July from a month earlier, the Commerce Department said Monday. The disappointing figure brought down SPDR S&P Homebuilders (XHB) and iShares Dow Jones US Home Construction (ITB) .

The homebuilders' exchange-traded fund is comprised mostly of Bed, Bath & Beyond (BBBY) , Home Depot (HD) , Lowe's (LOW) , Restoration Hardware (RH) and Whirlpool (WHR) .

The home-construction ETF gives the most weight to D.R. Horton (DHI) , Lennar (LEN) , NVR (NVR) , PulteGroup (PHM) , and Toll Brothers (TOL) . XHB Price Chart
XHB Price data by YCharts

New-home sales broadly declined from 2005 to 2011, and although they have picked up since 2011, higher mortgage rates and lackluster wage growth have curtailed growth.

Mortgage rates began to fall in 2008 as a result of the Fed slashing short-term rates and pumping liquidity into the economy as a way to combat the financial crisis. Last year, the Fed announced it was looking to end its stimulus program, which prompted a spike in mortgage rates.

Since then, the 30-year mortgage rate has stabilized above 4%, causing the cost of home buying to jump. Meanwhile, lackluster U.S. wage growth has also held back home buying.

If you liked this article you might like

Housing Stocks Fall as Fed Leaves Rates Unchanged

Housing Data Drives Down Homebuilding Stocks

Strong Housing Numbers Boost Home Construction ETFs

5 ETFs to Buy if You Like Lowe's Fourth-Quarter Earnings