Fears of Rising Mortgage Rates Hit the Housing Market. Home Depot, Builder Stocks Fall.

(Dreamstime)

Key Points

• The iShares U.S. Home Construction and SPDR S&P Homebuilders ETFs both fell approximately 2.1%.
• Home Depot and Lowe’s shares decreased by 1.6% and 1.7%, respectively, reaching their lowest closes since Aug. 11.
• The 10-year Treasury yield rose 0.043 percentage point to 4.161%, its highest level since Sept. 26.

A harbinger of higher mortgage rates was weighing on companies with exposure to the housing market on Monday. Higher Treasury yields could put upward pressure on mortgage rates—and, in turn, keep the housing market in its slump.

The iShares U.S. Home Construction exchange-traded fund and the SPDR S&P Homebuilders exchange-traded fund, two ETFs tracking the industry, were both down roughly 2.1% in late afternoon trading, on pace for their lowest closes since late September, according to Dow Jones Market Data.

Home Depot and Lowe’s, two companies that sell building supplies to both DIYers and professional contractors, were down 1.6% and 1.7%, respectively—both on pace for their lowest closes since Aug. 11.

The problem: the 10-year Treasury yield, which informs mortgage rate movements, was headed higher on Wednesday as the government remained shut down. The yield rose 0.043 percentage point to 4.161%, its highest level since Sept. 26 and the greatest daily increase since mid-September.

Mortgage rates often echo changes in the yield, which means financing costs could increase for would-be buyers. That could keep renters from buying and homeowners from trading up for longer—and might mean that builders will keep offering incentives or reducing prices to get would-be buyers to pull the trigger.

Of the builders surveyed by the National Association of Home Builders in September, 39% cut prices, while 65% said they used sales incentives.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com