New home builders had a relatively rough week with several major publicly-traded builders experiencing some nasty haircuts in their stock prices. With the exception of DR Horton, it wasn’t a good week for home builder stocks. While Facebook and Twitter were seeing record drops in their share prices, new home builders were also experiencing a hangover from weak growth in new home orders.

The Dow Jones Home Construction Index has trended lower for most of the year, down almost 18 percent year-to-date. It doesn’t take a rocket scientist to understand why the index peaked just after the Federal Reserve started their balance sheet unwind. With mortgage rates higher than they were last year, homes have become more expensive even if new home builders keep their prices flat. Builders in the DFW area have done a pretty good job of realizing this so far. The recent trend shows average prices for new DFW homes which are slightly lower than last year.

Home afffordability, or a lack of it, has been a driving theme so far in 2018. Home inventory has bottomed in many U.S. housing markets, including here in the Dallas-Fort Worth area. That is beginning to put pressure on sellers of more expensive homes. It’s still a hot market in the sub $300,000 price segments, but more expensive homes are taking longer to sell. As you go up the price bands inventory is more plentiful.

It’s easy to see why DR Horton was able to achieve relatively healthy numbers during their fiscal third quarter. Horton posted a 12 percent increase in new home orders because their average new home price barely budged from last year, with the average price of a new home order coming in under $300,000. Even with those solid results, DR Horton’s stock is down 14% YTD. As the Fed undwinds that massive balance sheet, the pressure on new home builders continues to mount. This is how QE works in reverse!

One common thread among all of the large home builders posting results recently is an increase in earnings due to the tax benefit provided by the recent handouts to corporate America (aka the Trump tax cut). Even with those juiced earnings, home builders are sledding uphill.

Builders with higher average price points or weaker product offerings are under the gun. PulteGroup reported a 1 percent decline in second quarter new orders and the stock sank almost 10 percent for the week, down 15% YTD. TRI Pointe Group reported a 7 percent decline in new orders and was rewarded with a 13 percent haircut for the week, down roughly 20% YTD. Beazer Homes takes the cake for crashing out last week after reporting a 9 percent decrease in new home orders, Beazer shares sank almost 17 percent for the week, down 34% YTD. That’s almost as bad as Hovnanian’s 53 percent year-to-date price drop. Even luxury home builder Toll Brothers has seen a 26 percent year-to-date share price decline.

Why are home builders catching a collective cold? In a word, it’s an affordability problem. New home sales for June came in lighter than expected, and all of that Fed asset-inflation that home builders have been taking for granted during the last few years is coming home to roost. Contrary to the ridiculous spin you can find in the Dallas Morning News, or one of Zillow’s clueless economists, home prices are definitely in a new bubble, at least when weighed against historical norms like incomes.