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Since hitting a five-year peak in mid-May of this year, shares of homebuilders’ stocks have dropped between 15% to 33%. That is about the time that mortgage interest rates began climbing and home prices regained their 2003 to 2004 levels. As both prices and interest rates continue to rise, homebuilders could be looking at further share price declines.

Home prices rose 12.4% in July, compared with the same month a year ago, for a 17th consecutive monthly year-over-year gain, according to research firm CoreLogic Inc. (NYSE: CLGX). Home prices rose 1.8% from June to July. The data include sales of distressed properties, and the index is a non-seasonally adjusted three-month weighted average.

Excluding distressed sales, July prices rose 1.7% compared with June, and the year-over-year price rose by 11.4%. Home prices remain 17.6% below their April 2006 peak when distressed sales are counted, and 12.9% below the peak when distressed sales are excluded.

When Toll Brothers Inc. (NYSE: TOL) reported earnings two weeks ago, earnings per share met estimates, but revenues did not. Still the company forecast full fiscal year revenues up nearly 31%, as its average sales price rose $75,000. Toll Brothers sits at the high-end of the new home market and until mortgage rates rise well above 5% the company could perform well. Shares are down about 16% since mid-May.

PulteGroup Inc. (NYSE: PHM) also expects the housing market to improve. When it reported results in July, the company’s CEO said that the U.S. home market is “solidly on track towards a sustained, long-term recovery” and that the rise in interest rates had “little effect” on buyers. Shares are down about 32.5% since mid-May.

The fiscal year for D.R. Horton Inc. (NYSE: DHI) ends this month, and the consensus estimate for the company’s earnings per share is $1.29, compared with earnings of $2.77 a share last year. Horton’s shares are down about 33% since mid-May.

Rising home prices also affect the home improvement stores, Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW). Since mid-May, Home Depot stock is down about 2% while Lowe’s stock is up nearly 10%. And for the past 12 months, Home Depot is up about 33% and Lowe’s is up about 62%. Of the housing stocks, only PulteGroup shows a gain over the past year.

As home values increase it makes sense for homeowners to update and remodel their homes, whether to sell or to add value for potential sale sometime down the line. Add in the number of existing homes being sold, which new owners often choose to “fix up,” and the rise in Home Depot’s and Lowe’s stocks has a much better chance of continuing than do stock price rises in homebuilders.

CoreLogic expects August housing prices to rise another 12.3% year-over-year and to rise by 0.4% month-over-month. Excluding distressed sales, CoreLogic’s year-over-year increase for June is forecast at 12.2% and the month-over-month estimate is forecast to rise by 1.2%.

The company’s chief economist noted:

Looking ahead to the second half of the year, price growth is expected to slow as seasonal demand wanes and higher mortgage rates have a marginal impact on home purchase demand.

Including distressed sales, July year-over-year home prices rose the most in Nevada (prices up 27%), California (23.2%), Arizona (17%), Wyoming 16.4%) and Oregon (15%). Only Delaware (-1.3%) posted a year-over-year home price decline, while the other states with the smallest gains include New Mexico (0.03%), Vermont (1.4%), Alabama (2%) and Mississippi (2.2%).