Housing Stocks Slide as Government Data Shows Weak Recovery in Construction
Housing stocks took a hit on Wednesday morning as fresh government data revealed a sluggish recovery in new residential construction, causing concern among investors.
The SPDR S&P Homebuilders ETF (XHB) was down 1%, with major players like D.R. Horton, Inc. (DHI), Lennar (LEN), and Toll Brothers (TOL) all experiencing declines of around 2% during morning trading.
According to data from the Census Bureau, construction for single-family and multifamily homes saw a modest rebound in April from the previous month. However, the numbers were down year over year and fell short of expectations, largely due to rising mortgage rates putting a damper on housing activity.
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1.36 million, up 5.7% from March but down 0.6% from the same period last year. Economists had been anticipating a rate of 1.42 million, highlighting the unexpected weakness in the market.
“The recovery wasn’t as strong as we had anticipated, which potentially casts some doubt on our above-consensus forecast for homebuilding,” noted economist Thomas Ryan of Capital Economics.
The lackluster data comes at a time when homebuilders are feeling less confident about the housing market, with mortgage rates remaining above 7%. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell to 45 in May, marking a six-point drop from April and indicating a shift towards negative sentiment among builders.
Despite the gloomy outlook, Ryan remains optimistic about single-family starts potentially reaching 1.11 million this year, driven by the demand for new homes amid a shortage of existing properties on the market. However, weaker movement in multifamily starts could offset some of that growth, leaving total housing starts at around 1.43 million by the end of the year.
As investors continue to monitor the housing market closely, the latest data serves as a reminder of the challenges facing the industry and the uncertainties that lie ahead.
