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Monday, Jan 30, 2023

Homebuilder Stocks Make A Recovery

Stocks of major homebuilding companies – brutally hammered down this year because of sharply rising interest rates – have bounced up.

Westwood-based KB Home closed Wednesday up 12% over the past month, though shares remain down 28% year-to-date. The stock closed on Wednesday at $30.91. The homebuilder’s low point of the year was Sept. 27 when shares dipped to $25.51.
Likewise, as of Wednesday, Standard & Poor’s exchange traded fund of homebuilding companies was up 11% over the last month. But for the year, the price is down 26%.

The stocks have been buoyed lately because of the notion that interest rates may moderate soon. Michael Rehaut, an analyst with J.P. Morgan, claimed in a research note recently that homebuilders have a “favorable risk/reward” prospect in 2023, given the signals of slowing interest rate hikes.


KB Home recently opened Verano, a community in Wildomar.


“We expect fundamentals to begin to stabilize in 2023 alongside a potentially steady if not more moderate interest rate backdrop,” Rehaut wrote, according to a report from Barron’s.
In that event, Rehaut added that “this could allow for interest rates to decline from current levels over the next 12 months and hence be a significant positive catalyst for the stocks, as we highlight historical outperformance following the end of prior Fed tightening and rising rate periods.”

What’s more, the Commerce Department reported Wednesday that new home sales unexpectedly rose 7.5% in October. Analysts polled by The Wall Street Journal had forecast new home sales to fall in October.

Home sales have suffered this year because the Federal Reserve has raised interest rates sharply, causing mortgage interest rates to go up in lockstep. That effectively makes homes more expensive, resulting in lower home sales.

Besides KB Home, other homebuilders’ stocks also have been climbing lately but are still way down from the beginning of the year.
Miami-based Lennar Corp., for example, closed at $86.46 Wednesday, up 16% over the past month. But it remains nearly 23% down for the year.


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