NEW YORK - The pace of U.S. economic growth may prove to be critical for shares of homebuilders, which have climbed sharply as spring approaches. An easing economy that allows for lower interest rates supports an optimistic outlook for the industry, investors say, but any hints of a sustained downturn could sink shares.
Housing shares tend to rise from late fall to early spring, in anticipation of the busiest selling season of the year for homebuilders. Since 2002, the PHLX Housing Index has averaged a 7.1 percent rise between the end of October and the end of April, versus a 3.8 percent drop outside of that period.
Along with a positive outlook for the U.S. economy as a whole, those data support a sustained climb in homebuilding shares, some investors say. But mortgage rates have since eased in tandem with Treasury yields as the Federal Reserve has indicated it will pause interest-rate hikes and inflation has remained benign. U.S. 30-year mortgage rates are tied to the benchmark 10-year Treasury yield.
The 2017 U.S. federal tax overhaul capped deductions for state and local taxes, which raised concerns that people would be dissuaded from buying homes in high-tax states such as New York and California. But a slowdown in those markets may be offset by an uptick in other regional markets. Still, given persistently high home prices, affordability could weigh on the housing market once again, said Torsten Sløk, chief international economist at Deutsche Bank Securities in New York.
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