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Shares of homebuilders continue to decline as rates begin to creep higher again. According to a report out of the Mortgage Bankers Association, loan application volume decreased 1.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index increased 9% compared with the previous week. Additionally, the Refinance Index decreased 2% from the previous week. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index increased 9% compared with the previous week and was 0.2% lower than the same week one year ago. RUN-UP IN PRICES NOT SUSTAINABLE: The widening gap in home prices versus income growth is not "sustainable," Lawrence Yun, chief economist for the National Association of Realtors, recently said. "From the cyclical low point in home prices six years ago, a typical home price has increased by 48%, while the average wage rate has grown by only 14%," added Yun. MORTGAGE RATES CREEPING UP: Increasing yields on U.S. Treasury bonds mirrors inflation concerns and expectations of the Fed hiking rates at a steeper pace. Mortgage rates move up in tandem with yields on the U.S. 10-year note, thereby increasing costs to home buyers. COST HEADWINDS CONTINUE: According to recent reports, the national labor shortage is making it increasingly difficult and expensive to find construction workers. With that, the price of lumber -- an integral part of the cost of building a home -- is skyrocketing. PRICE ACTION: The entire homebuilder group, including PulteGroup (PHM), D.R. Horton (DHI), Lennar (LEN), KB Home (KBH), Meritage Homes (MTH), Beazer Homes (BZH) and Toll Brothers (TOL) is lower in afternoon trading. RESIDENTIAL CONSTRUCTION STOCKS LOWER: Shares of construction firms exposed the residential construction market are also lower, including Masco Corporation (MAS), Owens Corning (OC) and Leggett & Platt (LEG).

Shares of homebuilders continue to decline amid a market rally, after total mortgage application volume decreased 2.9% for the week ending May 25. According to the Mortgage Bankers Association, on an unadjusted basis, the Market Composite Index, a measure of mortgage loan application volume, decreased 4% compared with the previous week. The Refinance Index decreased 5% from the previous week to its lowest level since December 2000. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index decreased 3% compared with the previous week and was 2% higher than the same week one year ago. RUN-UP IN PRICES NOT SUSTAINABLE: The widening gap in home prices versus income growth is not "sustainable," wrote Lawrence Yun, chief economist for the National Association of Realtors, recently. "From the cyclical low point in home prices six years ago, a typical home price has increased by 48% while the average wage rate has grown by only 14%," added Yun. MORTGAGE RATES CREEPING UP: Increasing yields on U.S. Treasury bonds mirror inflation concerns and expectations of the Fed hiking rates at a steeper pace. Mortgage rates move up in tandem with yields on the U.S. 10-year note thereby increasing costs to home buyers. RECENT EARNINGS REPORTS CONFIRM WORRY: Recently, Toll Brothers (TOL) reported quarterly results that were dented by higher costs. Toll Brothers reminded investors of the challenges facing home builder firms when it reported second quarter earnings per share of 72c, way below estimates of 76c, on revenue that was just in-line with Street expectations. The Toll brothers report out on May 22 indicated that costs jumped over 20% for the builder, hurting gross margins which had dropped to 22.5% from the year-ago quarter's 24.3%. COST HEADWINDS CONTINUE: According to various reports out recently, the national labor shortage is making it increasingly difficult and expensive to find construction workers. With that, the price of lumber -- an integral part of the cost of building a home -- is skyrocketing. PRICE ACTION: The entire group, including PulteGroup (PHM), D.R. Horton (DHI), Lennar (LEN), KB Home (KBH), Meritage Homes (MTH), Beazer Homes (BZH) and Toll Brothers, is struggling compared to broader market indices which are spiking higher.