Truist comments on homebuilder stocks amid rising mortgage rates

Investing.com - Truist maintained Hold ratings on D.R. Horton (NYSE: DHI), Meritage (NYSE: MTH), and Lennar (NYSE: LEN) while warning that higher mortgage rates will weigh on the sector, particularly lower-end builders, according to a research note released Tuesday.

The Securities Industry and Financial Markets Association released capital markets statistics on Monday covering September and the third quarter of 2026. Agency mortgage-backed securities issuance for the third quarter totaled $374 billion, a 6% year-over-year increase. This marked the lowest quarterly growth since 2024, down from 35% growth in the first quarter and 22% in the second quarter. September posted just a 2% year-over-year increase.

Trading volume for agency to-be-announced mortgage-backed securities fell 16% year-over-year during the quarter, worse than the 9% decline seen in the second quarter. On a dollar basis, trading volume declined 6% year-over-year. Mortgage-backed securities prices fell approximately 4% during the quarter, with most of the decline occurring in September.

Thirty-year fixed mortgage rates rose about 100 basis points in the third quarter, primarily in September. If rates stabilize at current levels through year-end, the spring selling season will begin with rates approximately 140 basis points higher year-over-year.

Lower-end builders face the greatest impact from higher rates as buyers are priced out of monthly payments and have less incoming home equity. Truist said the rate environment will affect its entire homebuilder coverage.

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