New York:US real estate and homebuilding stocks saw significant declines on Wednesday due to accelerating inflation, which has heightened expectations for Federal Reserve rate hikes.

According to Anadolu Agency – English, money markets have priced in a 25-basis-point rate hike for December, with considerations for a potential 50-basis-point increase following higher-than-expected headline and core inflation figures.

US Treasury yields increased across the board in anticipation of the Veterans Day holiday. The two-year Treasury yield, which is sensitive to policy changes, rose by 17 basis points to 4.75%, while the benchmark 10-year yield increased by 13 basis points to 5%. This rise in long-term yields has resulted in additional pressure on consumer borrowing costs, as mortgage rates typically follow the 10-year Treasury yield plus a risk margin.

Real estate investment trusts (REITs) are under pressure due to rising borrowing costs, and shares of major US homebuilders have fallen amid higher yields and weaker outlooks. Specifically, shares of homebuilding giant Lennar dropped by 5.4%, Meritage by 4.4%, PulteGroup by 3.9%, DR Horton by 3.8%, and luxury homebuilder Toll Brothers by 2.7%.

Analysts indicate that elevated mortgage rates will decrease housing affordability and negatively impact new home sales across the nation. The performance of real estate developer stocks remains dependent on future Federal Reserve policy decisions and the movement of the 10-year Treasury yield.

In related news, the Federal Reserve Bank of New York's third-quarter household debt report revealed that total mortgage balances increased by $257 billion from the previous quarter and $302 billion year-on-year, reaching $13.37 trillion.