Home-builder shares are bouncing back thanks to lower mortgage rates

Lower borrowing costs may give the housing market a boost

Mar.March 26, 2019 11:47 AM
A home under construction

Stronger performance stems in part from higher household confidence amid lower borrowing costs (Credit: Pixabay and Wikipedia)

After a year of decline, home-building companies are getting a boost.

Shares of home-building companies are on track for their best quarter in seven years, the Wall Street Journal reported. The SPDR S&P Homebuilders exchange-traded fund — which includes building-products and home-furnishing companies — has soared 17 percent this quarter and is on pace for its best three-month period since 2012.

Shares of Beazer Homes USA, BZH, Lennar, KB Home and D.R. Horton have all bounced back — each climbing about 20 percent. Meanwhile, NVR and Toll Brothers have risen 15 percent and 9 percent, respectively.

The stronger performance stems in part from higher household confidence amid lower borrowing costs. In recent months, more consumers who were previously on the sidelines have been willing to buy or refinance homes, the report said.

“Home builders have performed well under the assumption that the Fed is going back off on raising rates for a longer period of time, and that should give some relief on mortgage rates,” said Derek Maupin, portfolio manager at Hodges Capital Management. “If mortgage rates continue to come back down, we’ll probably see more people pull the trigger and buy a home. What’s getting priced in the stocks now is that affordability is improving on a long-term basis.”

Interest rates on 30-year mortgages slid to 13-month lows — which could bode well for demand. The rate for a 30-year fixed-rate mortgage was 4.28 percent last week, its lowest level since the week ended Feb. 1, 2018.

The decline comes as bond yields have fallen thanks to the Federal Reserve’s concerns about slowing economic growth. The yield on the benchmark 10-year U.S. Treasury note fell to 2.418 percent on Monday, the lowest since December 2017.

The housing market may also be looking up heading into spring selling season. Existing home sales rose 11.8 percent in February from the prior month — a sign the market could be seeing a lift from lower rates. [WSJ] — Meenal Vamburkar

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