Homebuilder stocks soar to new highs on insatiable demand for US housing
HOMEBUILDERS are capitalising on a seemingly unquenchable thirst for new housing, as buyers struggle with limited inventories and rising mortgage rates.
The S&P Composite 1500 Homebuilding sector hit a new 52-week intraday high on Wednesday (May 17), nearing an all-time high set in December 2021. It is now trading roughly 27 per cent above its 200-day moving average.
The group is the index’s best performer over the past six months and among the leaders this year, outperforming even growth industries such as tech.
After dropping to a low of more than 40 per cent last year, the recent rally in homebuilders represents a massive rebound from last June’s slump. It is also a testament to what appears to be a gradual recovery in home construction.
“What we’re seeing, frankly, is the early stages of the Street recognising that there’s something significant that they underestimated in builders,” Evercore ISI analyst Stephen Kim said in an interview. “Now they’re in the process of revising that.”
US housing has become a tale of two markets – existing homes and new homes, said Bloomberg Intelligence analyst Drew Reading.
A NEWSLETTER FOR YOU
Tuesday, 12 pm
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
While housing demand remains robust, current homeowners are unwilling to sell because many do not want to lose their existing mortgage rates of less than 4 per cent. Borrowing costs have reached a two-month high, according to the Mortgage Bankers Association.
This provides an opportunity for homebuilders in the new construction market. Orders for the quarter came in 18 per cent ahead of estimates, on average, despite mortgage rates above 7 per cent and regional bank concerns, Barclays analyst Matthew Bouley wrote in a note to clients.
“Looking forward, we forecast accelerating positive order growth for builders through the balance of 2023, and into 2024 with normalizing sales pace,” he wrote.
Builders are now offering incentives to help buyers afford homes. Some are buying down a 6.5 per cent mortgage rate to somewhere between 5 per cent and 5.5 per cent, Reading said.
Industry giant DR Horton is buying down rates on about 65 per cent of its sales, the company said at the JPMorgan Homebuilding and Building Products Conference on Tuesday.
DR Horton reported better than expected earnings in the latest quarter, signalling that real estate’s key spring selling season is off to a positive start. The stock closed at US$112.29 on Wednesday, the highest since its 1992 initial public offering, after falling as low as US$28 back in early 2020.
Peer Toll Brothers is expected to report quarterly earnings next week.
“With builders able to uniquely leverage mortgage rate buy-downs, and buyer urgency mounting as home prices have bottomed (also due to the lack of inventory), we continue to view homebuilders as positioned for further growth recovery,” according to Bouley.
Share with us your feedback on BT's products and services
