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DR Horton, KB Home stocks receive analyst downgrades amid mortgage rates and housing conditions

The Yahoo Finance Live team discusses the latest news with the housing market and related stocks.

Video transcript

- It's time for Triple Play, three stocks that were watching in the final 30 minutes of trading. We've got KB Home, Dick's Sporting Goods, and also Disney. Well, my play today, it's actually two stocks. So we do have KB Home, but also DR Horton. JP Morgan downgrading both names on softness in housing. Now, higher mortgage challenges with the 30-year fixed rate hitting its highest level that we've seen since November. And that jump in rates have moved potential homebuyers to the sidelines, with mortgage applications declining three weeks in a row to a 28-year low.

So as a result, JPMorgan making the case that fundamentals in the housing market may go sideways or potentially soften over the next quarter. Analyst Rehaut there cutting the bank's rating on DHI to neutral, double downgrading KBH to underweight. The homebuilders have actually performed OK since it started the year, really outperforming the broader market in many cases there. But the higher mortgage rate, the fact that the 30-year rate seems to be trending to the upside obviously here a headwind, a risk here for the housing market.

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- And we've seen the same thing with home prices. And it really just aligns with all of the housing data I feel like we've been seeing, at least generally speaking. With Case-Shiller data last week, six months in a row now we've seen month over month that price decline. And they noted last week too in that release that home prices may continue to weaken moving forward. So really something that we're not just watching right now, but it seems like that trend, Dave, is kind of continuing. So then what does this mean for the homebuilders not necessarily now, but, say, over the next six months? And maybe that's not the best picture.

- It's a really tenuous time. And this is ahead of Jerome Powell's-- we talk about everything in the context of Powell speaking to Congress this week. Will he further dampen the news in the housing sector? And it feels like, yes, because I think mortgage rates are at 6.65 last week. Some actually have them north of 7. Mortgage News Daily has them already north of 7% on the 30 year.

And I think either way they are headed back north of 7% in the next month, maybe the next six weeks, which is a gain of more than a full percentage point in just over a month's time. This housing market is really going to contract further in the months ahead. I can't imagine any good news in this environment, especially given the hawkish tone we're expecting from Jerome Powell tomorrow. It just feels like a tough time ahead.

- It almost makes you wonder in some ways too-- I know there was a story on the banking sector and talking about rates. When you think about rising mortgage rates, do you consider buying now if rates are going to go back up even higher? I know you're not getting--

- I think it's just [INTERPOSING VOICES]

- I know you're not getting a deal. But as you're talking about it going up above 7, if you're really that interested in buying, maybe you're just never going to get that deal.

- Yeah.

- [INAUDIBLE]

- Yeah. But the hope is that home prices are going to tick back just a little bit to make it a little bit more of an attractive deal for you. But, I mean, still, [INTERPOSING VOICES] year over year [INTERPOSING VOICES]

- The buyers I'm hearing right now are cash buyers. When I talk to realtors across the country, that's the action they're seeing, people that have nothing to do with these mortgage rates. And I think that's what we're going to see for the next couple of months.

- And that's why first-time homebuyers are being priced out for the most part.