Homebuilders’ reactions to housing starts report
Given the significant setbacks in housing data over the last few months, homebuilders’ confidence has taken a back seat. However, the April report boosted homebuilders’ confidence. The SPDR S&P Homebuilders ETF (XHB) and the iShares US Home Construction ETF (ITB) were unchanged on May 16 following the data release.
Many economists also believe that consumers have been more willing to buy homes or refinance with lower borrowing costs, lifting household confidence. A Wall Street Journal article in March stated that Derek Maupin, a portfolio manager at Hodges Capital Management, believes that homebuilders have performed well this year on the back of the assumption that the Federal Reserve will hold off raising rates this year. The strengthening labor market and higher incomes have also been supporting consumer spending this year.
Homebuilder stocks have seen considerable returns this year. If we look at their YTD (year-to-date) returns, we’ll see that the shares of LGI Homes (LGIH), Lennar (LEN), D.R. Horton (DHI), Pulte Group (PHM), and Home Depot (HD) have gained ~12.0%, 21.1%, 25.0%, 17.3%, and 13.7%, respectively, as of May 16. Other construction companies Toll Brothers (TOL), KB Homes (KBH), and Eagle Materials (EXP) have also gained ~8.0%, 18.1%, and 16.3% YTD, respectively.
Despite the benefits, homebuilders also face some headwinds, including labor shortages, slowing inventory, and rising materials costs. The next housing starts report is due for release on June 18, 2019.