Home builder stock slump as U.S. housing starts falling faster than expected

Home builder stock slump as U.S. housing starts falling faster than expected
Updated: 17 Jun, 2022
2 mins read

On Thursday, June 16, home builders’ stocks dropped markedly after data came in lower for May by 14.4%. Currently, the annualized units stand at 1,549 million, despite the readings for April being the strongest since May of 2006. 

Meanwhile, the housing market is facing a lot of pressure from inflation, mortgage rates, elevated material costs, and supply constraints. On the whole, the construction for single-family homes fell 9.2%, while apartment starts dropped by 26.8% in May. 

Similarly, the reduction in new home starts is having an adverse effect on some commodities, such as lumber. At the moment, the iShares U.S. Home Construction ETF (BATIS: ITB) is down 4.5% at the time of writing. 

Soft demand    

Similarly, more notable home builders’ stocks fell, such as Lennar Corp (NYSE: LEN), Toll Brothers (NYSE: TOL), KB Home (NYSE: KBH), Pulte Group (NYSE: PHM), and D.R. Horton (NYSE: DHI), which dropped by 3.9%, 4.33%, 5.47%. 4.39% and 3.49%, respectively. 

Comparably, the yield on the 10-year Treasury note rose to 3.47% after the Federal Reserve (Fed) hiked rates significantly after the meeting on Wednesday. Prior to the decision made by the Fed, the mortgage rates were around 5.6%, which is significantly higher than 3.5% at the beginning of the year, and the highest since 2008. 

On the other hand, builder backlogs remained raised, with the number of authorizations for construction of homes, not yet started increasing by 0.7% for May. In sum, the number of single-family homes under construction remains the highest since 2006. 

Subsequently, the U.S. homebuilder sentiment slid to a two-year low in June, a report by Bloomberg shows. Possibly rising inflation and mortgage rates have home builders worried about the market’s future. 

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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk. 

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Dino Kurbegovic

Dino is an investor and technology enthusiast with years of experience in managing complex projects. At Finbold he covers stories on stocks, investing, micro and macroeconomic trends. Also, he’s also building a micro solar power plants in his hometown.