Traders bet on builder stocks despite slowing housing market

Aug 18, 2022, 8:30 AM | Updated: 9:02 am

LOS ANGELES (AP) — The U.S. housing market has gone from red-hot to decidedly tepid since the spring, though you wouldn’t know it by this summer’s sharp rebound in homebuilder’s stocks.

Lennar, D.R. Horton and other homebuilders have outpaced the benchmark S&P 500 so far this quarter. One prominent exchange traded fund, the SPDR S&P Homebuilders ETF, is up about 23% since July 1. Meanwhile, the S&P 500 is up about 14%.

The rally by homebuilders follows a pullback in mortgage rates since June, suggesting Wall Street is already looking ahead to a rebound from this summer’s weak market.

“In the first quarter, the stocks were down a lot and demand was very strong, but rates were moving higher,” said Carl Reichardt, an analyst at BTIG. “The 10-year Treasury yield has come down and mortgage rates have followed, and that has been beneficial to the stocks.”

Average weekly interest rates for a benchmark 30-year home loan are back around 5% after climbing to 5.81% in June, according to mortgage buyer Freddie Mac. That’s still nearly double what it was a year ago, but the pullback is good news for builders, as lower mortgage rates increase would-be homebuyers’ pricing power.

The 10-year Treasury yield, which influences rates on mortgages and other consumer loans, has been easing amid worries among bond investors that the economy is slowing and could be headed for a recession.

The housing market’s long-term underpinnings remain very favorable for the new home construction business, especially because the inventory of previously occupied U.S. homes for sale remains near historic lows.

For now, however, builders are facing a deteriorating landscape. Sales of new U.S. homes fell in June to a seasonally adjusted annual rate of 590,000 homes, the slowest pace since April 2020, the Commerce Department said this week. The National Association of Home Builders’ latest index of builder sentiment fell in August for the eighth straight month.

Many builders are reporting more cancellations and slowing buyer traffic. To cope, many are offering incentives like paying buyers’ closing costs or buying down the rate on their mortgage.

While investors may have an eye on better days, perhaps next year, there’s likely more pain ahead.

“We are wary about how weak business could be in the second half of the year and in general we think the Street and economists are too optimistic about (housing) starts and sales activity in the back half of the year,” Reichardt said.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Lead water pipes pulled from underneath the street are seen in Newark, N.J., Oct. 21, 2021. (AP Pho...

Associated Press

Biden to require cities to replace harmful lead pipes within 10 years

The Biden administration has previously said it wants all of the nation's roughly 9 million lead pipes to be removed, and rapidly.

3 days ago

Facebook's Meta logo sign is seen at the company headquarters in Menlo Park, Calif., on, Oct. 28, 2...

Associated Press

Meta shuts down thousands of fake Facebook accounts that were primed to polarize voters ahead of 2024

Meta said it removed 4789 Facebook accounts in China that targeted the United States before next year’s election.

3 days ago

A demonstrator in Tel Aviv holds a sign calling for a cease-fire in the Hamas-Israel war on Nov. 21...

Associated Press

Hamas releases a third group of hostages as part of truce, and says it will seek to extend the deal

The fragile cease-fire between Israel and Hamas was back on track Sunday as the first American was released under a four-day truce.

8 days ago

Men look over the site of a deadly explosion at Al-Ahli Hospital in Gaza City, Wednesday, Oct. 18, ...

Associated Press

New AP analysis of last month’s deadly Gaza hospital explosion rules out widely cited video

The Associated Press is publishing an updated visual analysis of the deadly Oct. 17 explosion at Gaza's Al-Ahli Hospital.

11 days ago

Peggy Simpson holds a photograph of law enforcement carrying Lee Harvey Oswald's gun through a hall...

Associated Press

JFK assassination remembered 60 years later by surviving witnesses to history, including AP reporter

Peggy Simpson is among the last surviving witnesses who are sharing their stories as the nation marks the 60th anniversary.

11 days ago

Israeli Prime Minister Benjamin Netanyahu, chairs the weekly cabinet meeting in Jerusalem, Sunday, ...

Associated Press

Israeli Cabinet approves cease-fire with Hamas; deal includes release of 50 hostages

Israel’s Cabinet on Wednesday approved a cease-fire deal with the Hamas militant group that would bring a temporary halt to a devastating war.

12 days ago

Sponsored Articles

Follow @KTAR923...

Valley residents should be mindful of plumbing ahead of holidays

With Halloween in the rear-view and more holidays coming up, Day & Night recommends that Valley residents prepare accordingly.


Midwestern University

Midwestern University: innovating Arizona health care education

Midwestern University’s Glendale Campus near Loop 101 and 59th Avenue is an established leader in health care education and one of Arizona’s largest and most valuable health care resources.



Key dates for Arizona sports fans to look forward to this fall

Fall brings new beginnings in different ways for Arizona’s professional sports teams like the Cardinals and Coyotes.

Traders bet on builder stocks despite slowing housing market