Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Homebuilder Stocks are Suddenly Plunging

Companies / Housing Stocks Jun 21, 2013 - 01:45 PM GMT

By: Money_Morning

Companies

Gary Gately writes: Homebuilder stocks had soared in 2012 in the early stages of the housing recovery, but have since leveled off and had perhaps peaked earlier this year.

Then Thursday, major homebuilder stocks plunged amid fears of rising mortgage rates.


The declines came a day after the Federal Reserve suggested it may reduce the bond buying that has pumped up equity markets for more than a year.

Experts noted that homebuilder stocks are particularly sensitive to rising interest rates.

With rising rates, said Money Morning Chief Investment Strategist Keith Fitz-Gerald, "The homebuilders are going to have to do one of two things: They're either going to have to stop building because there's no demand or they're going have to lower their prices, which is going to hurt their profit margin."

In the short term, Fitz-Gerald said, we could see a spurt in home buying as those with mortgage applications in progress rush to lock in interest rates before they rise, but that increase likely will subside within a few months.

Homebuilder Stocks: The Toll

In mid-afternoon trading yesterday, PulteGroup Inc. (NYSE: PHM) was down more than 11%, to $18.47; DR Horton Inc. (NYSE: DHI), about 9.5%, to $21.20; Lennar Corp. (NYSE: LEN), nearly 8.5%, to $34.62; KB Home (NYSE: KBH), more than 8%, to $19.44; Standard Pacific (NYSE: SPF), about 8%, to $8.23; and Toll Brothers Inc. (NYSE: TOL), about 6%, to $31.13.

Meantime, the exchange-traded fund for the homebuilding industry, SPDR Home Builder (NSYSE: XHB), was down nearly 5.5%, to $29.19.

The declines come after sharp gains earlier. Megan McGrath, an analyst at MKM Partners, noted major homebuilder stocks had climbed an average of 118% in 2012.

But, she told Money Morning, "What I would say is I think the vast majority of returns to be made on the housing recovery have already been made. ... There are a few names that still have upsides but I don't think you can rely on sort of the rising housing tide to lift all boats anymore.

"Investors need to be a bit more cautious and you know," McGrath said. "We think stock picking is now more important, especially now that there is concern in the market over the impact that rising mortgage rates could have on the trajectory of the housing recovery and that has started to negatively impact the shares. The stocks have been very sensitive to mortgage rates in the past and we expect that to continue."

But McGrath said MKM believes KB Home and Toll Brothers will outperform other homebuilder stocks and the firm has rated both a "buy."

The luxury homebuilder Toll Brothers isn't as sensitive to mortgage rate changes and KBH is succeeding by targeting coastal California markets and wealthier first-time buyers, enabling it to increase average selling prices and therefore margins.

The day before homebuilder stocks plummeted, the National Association of Home Builders issued an upbeat news release on housing starts, which rose 6.8% in May mainly because of increased construction of multifamily homes.

Differing Views of the Market

"The outlook for housing continues to brighten as builders respond to increased demand for new homes and rental apartments," NAHB Chairman Rick Judson, a homebuilder from Charlotte, NC, said in the release. "While challenges with regard to the cost and availability of building materials, lots and labor are still keeping the pace of improvement in check, both builders and consumers are more confident about their prospects in the current marketplace."

Sales of new single-family houses in April 2013 hit a seasonally adjusted annual rate of 454,000, the second-highest level since 2008, and 29% above the April 2012 estimate of 352,000.

And earlier this week, the new survey of homebuilder confidence from Wells Fargo Bank and the National Association of Home Builders climbed to its highest level since 2006.

But Money Morning's Fitz-Gerald said homebuilders are putting the best possible spin on bad news - rising interest rates that will hurt sales.

"The homebuilders are going to try to game this. They're going to say, 'Hey, we're fine, we're well-positioned, we've got capital reserves, we've got this, we've got that,'" Fitz-Gerald said. "The reality of the situation, however, is that if they're not selling homes, they're not making money."

Source :http://moneymorning.com/2013/06/20/why-homebuilder-stocks-are-suddenly-plunging/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in