CHICAGO, Dec. 24, 2013 /PRNewswire/ -- Today, Zacks Equity Research discusses the Homebuilders, including PulteGroup, Inc. (NYSE: PHM-Free Report), D.R. Horton, Inc. (NYSE: DHI-Free Report), Hovnanian Enterprises, Inc. (NYSE: HOV-Free Report), Lennar Corporation (NYSE: LEN-Free Report) and Toll Brothers, Inc. (NYSE: TOL-Free Report).
The housing momentum seen in 2012 and in the first half of 2013 has slowed down a bit in the past 3-4 months due to the recent spike in mortgage rates, rising home prices, tight credit availability and the political uncertainty in Washington. While interest rates are rising, they are still below historical levels and housing is still affordable. In addition, accelerating job growth and increasing consumer confidence are also boosting demand for new homes.
Supply, however, is constrained by low home inventories, both of new single-family and multi-family homes. A shortage of land and labor is restricting the construction of homes, both single and multifamily. Home prices have thus started to move up with market demand gaining momentum and supply remaining limited.
Rising home prices and the spike in interest/mortgage rates since May this year slowed down the pace of orders and traffic. Buyers were taken unawares by the sudden increase in rates and a few put off their purchase decision, thereby increasing cancellation rates and lowering orders for most homebuilders in the last reported quarter.
Orders declined around 17% at PulteGroup, Inc. (NYSE: PHM-Free Report), 2% at D.R. Horton, Inc. (NYSE: DHI-Free Report) and around 9% at Hovnanian Enterprises, Inc. (NYSE: HOV-Free Report). Though order trends improved year over year for others like Lennar Corporation (NYSE: LEN-Free Report) and Toll Brothers, Inc. (NYSE: TOL-Free Report), they slowed down from the past quarter.
However, most homebuilders believe that this is only a temporary factor and are confident of demand picking up in the forthcoming quarters. These builders expect buyers to adjust to rising prices and interest rates and return to the market. Also, Federal Reserve's promise to keep interest rates low for some time despite tapering its $85 billion stimulus plan by $10 billion from Jan 2014 removes a major overhang for the homebuilders.
A slew of housing data released lately clearly shows that the housing recovery is still very much intact. Data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau showed that sales of newly built, single-family homes rose 25.4% in October. Another data release by the department showed that November housing starts surged to their highest in nearly six years.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), known as the homebuilder sentiment index, jumped 4 points to 58 in December from 54 in July. This was the seventh consecutive monthly increase in the index showing that the recent interest rate hikes have not dampened the housing recovery completely.
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