Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 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