Yahoo Finance March Sees U.S. Housing Starts & Permits Fall Below Expectations
The housing market is feeling the squeeze as mortgage rates climb, deterring potential buyers and stalling the housing recovery. March's homebuilding data highlights this trend, with single-family homebuilding taking a hit.
Permits for future construction and housing starts both fell short of expectations, reflecting the impact of rising mortgage rates on market activity. Builder hopes for lower interest rates have dimmed, complicating the outlook for the housing sector.
Key Takeaways
According to Commerce Department data released on Apr 16, housing starts for privately-owned units fell 14.7% month over month to a seasonally adjusted annual rate of 1.321 million units in March, missing the consensus mark of 1.480 million units by 10.7%. Also, the March figure dropped 4.3% on a year-over-year basis. Single-family starts — accounting for the lion’s share of the housing market — also declined 12.4% month-over-month in March to 1.022 million units.
Adding to the headwinds, residential building permits — an indicator of construction activity — fell 4.3% month over month but inched up 1.5% year over year in March to an annualized rate of 1.458 million units. The March permit level also fell short of analysts’ prediction of 1.510 million units by 3.4%. Also, permits for single-family homes decreased 5.7% last month from February year over year.
Rising Mortgage Rates: A Major Hindrance
The homebuilding industry is feeling the weight of soaring mortgage rates, which have relentlessly held steady between 6.6% and 7% since the onset of 2024. This unyielding pressure looks set to persist until inflation demonstrates substantial progress toward the Federal Reserve's 2% target.
In the latest blow, the Freddie Mac fixed rate for a 30-year mortgage surged 6 basis points, reaching a staggering 6.88% for the week concluded on Apr 11, 2024.
Meanwhile, March witnessed a notable uptick in employment, with the economy adding a formidable 303,000 jobs, surpassing February's rate of 270,000. However, the surge in job creation was accompanied by a concerning rise in inflation, which climbed to 3.5% from February's 3.2%.
Throughout the year, mortgage rates have steadily climbed, propelled by persistent inflation and a reassessment of the Federal Reserve's monetary strategy.
Despite a gradual slowdown in inflation from 9% to 3% between June 2022 and June 2023, the annual inflation growth rate has plateaued, ranging from 3.1% to 3.7%, averaging 3.3%. March's estimate of 3.5% annual growth falls within this range. However, the relentless rise in mortgage rates continues to cast a shadow over the homebuilding industry's prospects.
Homebuilder sentiment is also reflective of the fact. According to the recently released National Association of Home Builders/Wells Fargo Housing Market Index, homebuilder sentiment remained unchanged at 51 in April, breaking a four-month period of gains for the index.
Image Source: Zacks Investment Research
The Zacks Building Products - Home Builders industry has underperformed the S&P 500 Index and the broader Zacks Construction sector year to date (YTD). Over this period, the industry has gained 3.1% compared with the broader sector’s rise of 6.9%. The Zacks S&P 500 Composite has gained 6.4% in the same time frame.
Few homebuilders like NVR, Inc. NVR, KB Home KBH, Toll Brothers Inc. TOL, D.R. Horton DHI and PulteGroup, Inc. PHM have been capitalizing on the company-specific tailwinds defying the ongoing challenges.
Discussions on the Above-mentioned Homebuilders
NVR: Headquartered in Reston, VA, this homebuilder also sports a Zacks Rank #1 (Strong Buy). The stock has gained 9.4% YTD. You can see the complete list of today’s Zacks #1 Rank stocks here.
NVR’s earnings per share (EPS) estimates for 2024 have increased to $497.80 from $484.48 in the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 8.1%. Earnings for 2024 are expected to grow 7.4% year over year.
KB Home: Based in Los Angeles, CA, this homebuilder also flaunts a Zacks Rank #1. The stock has lost 1% YTD.
KBH’s EPS estimates for 2024 have increased to $8.01 from $7.59 in the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 26.1%. Earnings for 2024 are expected to grow 13.9% year over year.
Toll Brothers: This Horsham, PA-based homebuilder currently flaunts a Zacks Rank #1. Shares of the company have gained 11.1% YTD.
TOL’s EPS estimates for 2024 have increased to $13.71 from $12.23 in the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 30.2%. Earnings for 2024 are expected to grow 10.9% year over year.
D.R. Horton: This Texas-based one of the leading national homebuilders currently carries a Zacks Rank #2 (Buy). The company’s shares have lost 3.9% YTD.
DHI’s EPS estimates for 2024 have increased to $14.24 from $14.21 in the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average being 22.9%. Earnings for fiscal 2024 are expected to grow 3% year over year.
PulteGroup: Based in Atlanta, GA, PulteGroup currently carries a Zacks Rank #2. Shares of the company have gained 3.4% YTD.
PHM’s EPS estimates for 2024 have increased to $11.79 from $11.77 in the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 15.1%. Earnings for 2024 are expected to grow 0.6% year over year.
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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
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