Yahoo Finance The Zacks Analyst Blog Highlights M/I Homes, PulteGroup, Taylor Morrison Home and Tri Pointe Homes
For Immediate Release
Chicago, IL – June 24, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: M/I Homes, Inc. MHO, PulteGroup, Inc. PHM, Taylor Morrison Home Corp. TMHC and Tri Pointe Homes, Inc. TPH.
Here are highlights from Friday’s Analyst Blog:
May U.S. Housing Starts Decline Amid High Mortgage Rates
The homebuilding industry is reeling under the impact of rising mortgage rates and escalating building costs. These factors have severely hampered new home construction, leading to the lowest level of housing starts in nearly four years as of May.
Key Takeaways
According to Commerce Department data released on Jun 20, housing starts for privately-owned units fell 5.5% from April to a seasonally adjusted annual rate of 1.277 million units in May, missing the consensus mark of 1.390 million units by 8.1%. Also, the May figure dropped 19.3% on a year-over-year basis. Single-family starts — accounting for the lion’s share of the housing market — also declined 5.2% in May to 982,000 units.
Adding to the headwinds, residential building permits — an indicator of construction activity — fell 3.8% month over month and 9.5% year over year in May to an annualized rate of 1.386 million units. The May permit level also fell short of analysts’ prediction of 1.450 million units by 4.4%. Also, permits for single-family homes decreased 2.9% last month from April but up 3.4% year over year.
Soft Activity Points to Moderate in Q2?
Initial claims for state unemployment benefits declined 5,000 to a seasonally adjusted 238,000 for the week that ended on Jun 15, 2024, down from a 10-month high of 243,000 in the previous week. This figure was slightly above the consensus mark of 235,000 claims for the week. However, the four-week average of claims, which smooths out weekly fluctuations, rose 5,500 to 232,750, marking the highest level since September.
Despite these declines, weekly unemployment claims remain low by historical standards, indicating that most Americans continue to experience job security. However, weekly claims have recently been trending upward after remaining below 220,000 for most of the year.
The overall economy has shown signs of slowing, partly due to higher borrowing costs. Apart from the housing market, retail sales exhibited minimal growth last month, further indicating a slowdown. The Federal Reserve has maintained its benchmark overnight interest rate in the 5.25%-5.50% range since last July. At their recent meeting, Fed officials revised the number of anticipated rate cuts for this year to just one from a previously projected three rate cuts.
Although inflation has decreased from its mid-2022 peak of 9.1%, it remains above the Fed's 2% target. According to Bill Adams, chief economist at Comerica, "Economic indicators for the second quarter largely point to another slow quarter of economic activity." He further noted that the combination of soft activity and labor market data reinforces expectations for the Fed to begin cutting interest rates later this year, with an initial cut anticipated in September and a second cut in December.
Despite the 30-year fixed mortgage rate dropping below 7% to 6.87% for the week ending Jun 20, 2024, a quick recovery in housing starts is unlikely. Homebuilder confidence reached a six-month low in June, with the National Association of Home Builders noting that consistently high mortgage rates are discouraging many potential buyers from entering the market.
As of Jun 20, 2024, the Federal Reserve Bank of Atlanta's GDPNow model estimates that the U.S. real GDP growth rate for the second quarter of 2024 will be 3.0%. This is down from 3.1% on Jun 18. Economists at Goldman Sachs have reduced their GDP growth estimate for the second quarter from an annualized rate of 2.0% to 1.9%.
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 lost 0.2% against the broader sector’s rise of 6.9%. The Zacks S&P 500 Composite has gained 15.2% in the same time frame.
Few homebuilders like M/I Homes, Inc., PulteGroup, Inc., Taylor Morrison Home Corp. and Tri Pointe Homes, Inc. have been leveraging company-specific advantages to overcome the current challenges. Each of these stocks currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of PHM, TPH and TMHC have gained 7.3%, 4.6% and 1.8% YTD, respectively, while MHO’s shares have lost 13.4% in the same time frame.
The rising mortgage rates and challenging economic environment have significantly impacted the homebuilding industry, with housing starts and permits declining sharply. This trend, combined with other economic data, suggests a slow second quarter of economic activity, prompting expectations of future rate cuts by the Federal Reserve.
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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
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Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report
