Home-Builder Stocks Are Sitting Pretty

By Jessica Menton 

Shares of home builders were a relative bright spot Wednesday in a sea of red in the stock market.

Lennar Corp. was among the best performers in the S&P 500 after the company delivered stronger-than-expected third-quarter earnings and reported an increase in orders and deliveries.

"We continue to believe the basic underlying housing market fundamentals of low unemployment, higher wages and low inventory levels remain favorable," Chairman Stuart Miller said in prepared remarks.

Shares climbed 3.8% to $57.82 to notch a 52-week high. That compares with the broader S&P 500's 1.9% decline.

Home-building companies have rebounded this year after concerns about a weak housing market and a downturn in economic growth weighed on those shares last year. NVR Inc. and PulteGroup Inc., which fell 2.3% and 0.6%, respectively, are up at least 39% this year. Both are also hovering around 52-week highs.

Investors have taken a second look at the group after the Federal Reserve lowered interest rates in July for the first time in a decade. The move helped ease mortgage rates, which have given home buyers an incentive.

A decline in rates has also helped the housing market remain strong amid renewed worries about slowing global growth. Weak readings this week on manufacturing activity and private-sector job growth have revived concerns about the U.S. economy.

Still, some analysts expect that home builders will continue to benefit from improving home sales and housing construction as home buyers look to refinance. Recent housing data has pointed to a firming housing market. Home building in the U.S. rose in August to the highest level since June 2007, the Commerce Department said, while pending home sales rebounded.

Mortgage rates are expected to remain low for the foreseeable future, according to Freddie Mac. Last week, the average U.S. fixed rate for a 30-year mortgage -- which dropped to a three-year low in August -- fell to 3.64%, Freddie Mac said Thursday. That's down from 4.7% a year ago.

The mortgage-finance company forecasts the 10-year U.S. Treasury yield will average 1.8% in 2020, down from an annual average of 2.1% in 2019. The 10-year yield settled at 1.594% Wednesday.

Continued improvement in the sector could give home-builder stocks more room to run, some analysts and investors say.

"The macro backdrop has rebounded, as starts are set to turn positive, inventory growth has moderated and affordability has improved, which in turn should allow the housing recovery to resume," analysts at JPMorgan Chase & Co. said in a note.

Write to Jessica Menton at [e-mail]

(END) Dow Jones Newswires

October 02, 2019 17:03 ET (21:03 GMT)

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