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Homebuilder stocks fell on Monday after a closely watched housing sentiment index pared four months of gains amid higher mortgage rates.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) was unchanged from March at 51 in April. Of course, any number above 50 indicates that more builders consider conditions to be good than bad.

“April's flat reading suggests there is potential for demand growth, but buyers are holding back until they get a better gauge of where interest rates are headed,” NAHB Chief Economist Robert Dietz said in a statement.

Lennar ( LEN ), Pulte ( PHM ) and Toll Brothers ( TOL ) all fell more than 1% in the morning, while the SPDR S&P Homebuilders ETF ( XHB ) shed 0.3%.

The flat confidence level among builders underscores how much prospective buyers and sellers are already dealing with high house prices and limited housing stock. A higher-than-expected inflation print last week prompted investors to cut the number of rate cuts they see this year to two, less than the average of three predicted by the central bank at its March meeting.

“As markets are now adjusting to rates due to recent inflation readings, we still expect the Federal Reserve to announce future rate cuts later this year and mortgage rates to moderate in the second half of 2024,” Dietz said.

Mortgage rates are slightly higher than they were at the start of the year, putting borrowers on the sidelines just as the spring home-buying season kicks into high gear. The average rate for a 30-year fixed mortgage rose to 6.88%, up from 6.82% the previous week. Freddie Mac said.

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In April, builders pulled back slightly in reducing home prices, with 22% of builders reporting so, down from 24% in March and 36% in December last year.

Meanwhile, the use of sales incentives fell to 57% in April from 60% in March.

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