Homebuilder stocks rebound after interest rate panic plunges

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In the Lennar Corp. development project in Montgomery, Illinois, a “sold” sign is hung on the outside of a house under construction.

Daniel Acker | Bloomberg | Getty Images

As the market rebounded on Monday to start the new year, the residential construction sector was sold off. iShares US Home Construction ETF fell 2.69% on Monday, its worst day since September 30day When it fell 2.89%.

The decline was mainly due to the increase in the yield of 10-year US Treasury bonds, which roughly followed the mortgage interest rate. Investors seemed to be dismissive of omicron’s variants and therefore withdrew from the relatively safe bond market. This has led to builders becoming an outlier of the stock market rebound.

But construction stocks rebounded on Tuesday, and despite the weakening of affordability, investors are still betting on housing demand. The homebuilder ETF rose less than 1% in midday trading.

Some of the biggest stocks in the industry have seen bigger gains. PulteGroup rose 1.5% in midday trading, while Toll Brothers shares rose 1.6%.

“We still believe that affordability has not actually been stretched (at least by historical standards),” said Buck Horne, a residential builder analyst at Raymond James. Increase.”

Horn acknowledged that “a considerable number of investors we have spoken to are still upset about the group due to affordability issues. The sharp fluctuations in interest rates that we saw on Monday may have exacerbated these concerns.”

With the sudden surge in housing demand, home builders have been the darling of the pandemic. ITB rose by 48.6% in 2021, which is the third consecutive year of growth and the best year since 2017.

According to the latest data from CoreLogic, house prices in November rose 18.1% year-on-year. This is actually a slight increase from October’s annual return (18.0%). Some markets such as Phoenix, Las Vegas and San Diego saw annual increases of 30.5%, 24.1%, and 21.8%, respectively.

CoreLogic President and CEO Frank Martell said: “In the past year, we have seen one of the strongest seller markets in a generation.” “Although interest rate hikes may help cool home purchases. Activities, but we expect 2022 to be another strong year and prices will continue to rise.”

According to data from the National Association of Realtors, sales of homes for sale measured by signed contracts declined slightly in November, but real estate agents attributed the lack of supply to high prices.

NAR Chief Economist Lawrence Yun said: “Although I don’t expect price cuts or another year of record price increases, the market will see more inventory in 2022, which will help some consumers. Affordable.”

According to a report by real estate data and analysis company ATTOM, compared with the historical average of a little more than three-quarters across the country, by the end of 2021, the affordability of median-priced single-family homes is lower. This is an increase from only 39% of historically affordable counties in the fourth quarter of 2020 and the highest level in 13 years.

Although most analysts claim that the housing market as a whole is still affordable, the amount of income spent on housing is increasing rapidly in light of wage growth and the recent rise in the savings rate. At some point, if the debt-to-income ratio is too risky, the lender will be less likely to provide loans to certain borrowers.

Todd Teta, chief product officer at ATTOM, said: “The average wage earner can still afford typical homes across the United States, but as housing prices continue to soar and mortgage interest rates rise, the financial comfort zone continues to shrink.”


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