A Housing ETF Up 15.7% Despite 38% Plunge in Key Residential Demand Factor

The SPDR S&P Homebuilders ETF (NYSEARCA:XHB) has climbed 15.7% year to date, trading at $119.10 per share as of February 12, 2026. The rally reflects investor optimism that easing mortgage rates and improving affordability will revive housing demand. But earnings from holdings like D.R. Horton (NYSE:DHI | DHI Price Prediction) and PulteGroup (NYSE:PHM) reveal a more complicated picture, with order growth offset by margin compression from land impairment charges and cautious consumer sentiment.

The Mortgage Rate Equation

Treasury yields have eased significantly over the past year, with the 10-year note settling into a range that translates to more affordable mortgage rates for homebuyers. This stabilization matters because it removes one of the primary obstacles that kept potential buyers on the sidelines throughout 2025. Lower borrowing costs should gradually unlock demand for the new homes that XHB’s homebuilder holdings depend on for revenue growth.

Yet improving affordability has not translated to surging demand because consumer psychology remains deeply pessimistic. Sentiment readings in late 2025 fell to levels typically associated with recessions, and homebuilder executives are acknowledging this reality. DHI’s CEO explicitly cited cautious consumer sentiment as a persistent headwind, confirming that psychological barriers are preventing buyers from acting even as financial conditions improve.

The weakness in consumer confidence shows up clearly in construction activity. Housing starts have declined substantially from year-ago levels, indicating that builders are responding to tepid demand by pulling back on new projects despite the more favorable rate environment. Watch the University of Michigan Consumer Sentiment Index monthly for signs of recovery, and track the Federal Reserve’s housing starts data for confirmation that builders are responding to demand.

The HVAC Split

Carrier Global (NYSE:CARR), XHB’s largest holding at 3.68%, exemplifies the divergence within housing exposure. The company’s commercial HVAC business surged in Q4 2025, driven by data center demand, while residential HVAC in the Americas plunged 38% year over year. This split matters because XHB’s performance depends on residential strength, and the sharp decline in Carrier’s residential segment directly reflects the weakness in housing demand that threatens the ETF’s core thesis even as the company’s commercial success masks the underlying problem.

The most important macro factor for XHB is whether consumer sentiment rebounds as mortgage rates stabilize. The most important micro factor is whether homebuilders can defend margins as they navigate land impairment charges and cautious demand.