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Homebuilder stocks close lower on weak housing starts data

Homebuilder stocks such as D.R. Horton (DHI), Toll Brothers (TOL), and Lennar (LEN) closed lower after disappointing housing starts data.

Yahoo Finance's Dani Romero discusses the data and what investors can expect from homebuilder earnings this quarter.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Stephanie Mikulich.

Video transcript

JULIE HYMAN: Homebuilder stocks, we're watching those as well today. They're under pressure on weaker-than-expected housing starts data. Our Dani Romero, who tracks housing for us, is here with the details on that.

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DANI ROMERO: Investors aren't too happy right now, especially what's going on in the homebuilding sector. If we take a look at homebuilder stocks, they're down today. Lennar is down about 2%. D.R. Horton as well down 2%.

And also the index that tracks the performance on home construction, ticker ITB, that is significantly underperforming the broader market today. And this is all on the heels of the fresh government data that we got. Housing starts were down 14% on a monthly basis, but single family starts actually took a bigger hit on a monthly basis.

They're down 12%. But on a yearly basis, they're up 21%. But remember, March was a wet weather month. I mean, I can attest to this being in New York.

It rained a lot in March. So, that does slow down construction, obviously. But another thing to factor into all of this is homebuilder confidence was also flat in April. So, that doesn't look too great right now.

JOSH LIPTON: And Dani, we're going to start getting earnings reports from some of these names. D.R. Horton on tap this week, right? What do you expect to hear?

DANI ROMERO: So, homebuilder season, earnings season is kicking into gear. D.R. Horton on deck. They report their second-quarter earnings before the bell on Thursday. But some analysts on Wall Street, they're really saying that the interest rate uncertainty really could hit homebuilders and their forecasts for this year.

Other analysts are also expecting financials to be really solid, but gross margin outlooks could be uncertain. Because remember, mortgage rates right now, they're currently hovering around that 7% and these builders have been offering these really nice incentives, the mortgage rate buydowns. So that does weigh very heavily on gross margins. So that will really be, you know, something that I'll be looking out for, especially when it comes to finishing off this first year and this whole rate debate that's going on.

JULIE HYMAN: Yeah. We'll be watching those numbers. Thanks, Dani.