Contractors work on the wood framing for a house under construction in the Norton Commons subdivision of Louisville, Kentucky, U.S., on Friday, July 29, 2016.

Homebuilding stocks are getting crushed as they take a direct hit from the rising interest rates rattling financial markets this month.

The iShares Home Construction exchange-traded fund, which includes homebuilding products and homebuilders, is down 27 percent since January. The SPDR S&P Homebuilder ETF is down 21 percent, also in a bear market. Both funds have fallen more than 3 percent in September.

The sector has become viewed as undesirable with the 30-year fixed rate mortgage rate hitting the crucial 5 percent level. In addition, the 10-year Treasury yield rose to a new seven-year high on Tuesday. The U.S. bond market was closed Monday for Columbus Day.

"It already is affecting housing. Every basis point rate rise already is affecting housing. The run-up in rates over the past year is now weighing increasingly heavily on single-family housing demand, particularly since housing prices have risen so much," said Mark Zandi, chief economist at Moody's Analytics. "Affordability is now an issue for many potential home owners. Home sales have gone sideways since the beginning of the year and house price growth is now slowing in many markets so it's already doing damage. Some of the weakening is due to the tax effect in markets where the deduction was critical."

Those areas include California, New York, Connecticut and New Jersey.

But most economists including Zandi so far do not see a major slowing in the housing market and do not expect it to have a big impact on the economy, even if consumers lose some of their appetite for real estate, particularly at the high end. Analysts also say some of the negative action in homebuilders and related stocks may be overdone.

"I think fundamentals are strong out there, but I think buyers are going to continue to be involved in the market particularly at the low end," said Susan Maklari, homebuilder and building products analyst at Credit Suisse. "That will come into play in the builder stocks but we obviously think the upside is not what it was before. … We see the potential for upside but less than we did before."

"One of the things you probably could see is a seasonal kind of bounce back that happens as investors start to think about 2019, and the spring selling season that comes in early February. There probably could be a sense that even with the 10-year at 3.27 and 30-year mortgages at 4.7, these companies are going to deliver pretty decent growth rates," Maklari said.

Robert Shiller, the Nobel Prize-winning economist, has considered whether the housing market is at a turning point. "I'm a little bit worried about that, but not really ready to call that."

The Yale professor told CNBC's "Squawk on the Street" that there's home price weakness in some cities, including New York, Boston, and Seattle. However, he said, "They are still going up at a good pace nationally."

Ben Herzon, economist at Macroeconomic Advisers, said while some home price gains have slowed, he does not expect a major slowdown in housing. "There are other factors, in addition to rates that affect housing — how well income is doing, whether people have jobs. Rates is just one of the factors. In our forecast, the outlook is for continued improvement in the housing market, at least for the next couple of years," he said.

Existing home sales for August were unchanged, at a rate of 5.34 million units. That follows four straight months of declines. Some analysts blame the slowdown on a lack of properties for sale.