Home-builder shares are fast approaching their highs for the year, moving past steep 2018 losses thanks to a combination of falling mortgage rates and firming housing data.
The SPDR S&P Homebuilders ETF (XHB) is up 30% after rising every day of the week so far, putting it a hair’s breadth away from surpassing its 2019 high and well above the S&P 500’s (.SPX) 17% gain for the year. LGI Homes (LGIH), which focuses on targeting first-time buyers, has soared 77% this year, while fellow home-builder Lennar (LEN) has jumped 33% and KB Home (KBH) has risen 49%.
Both the index and the mentioned individual stocks are outpacing the S&P 500 for the month as well.
It’s a sharp turnaround after fears about declining home sales and broader market jitters fueled a monthslong slide among home-builder shares in 2018.
This year, investors have found fresh reasons to bet on the group. Mortgage rates recently fell to their lowest levels since late 2016, mirroring a broader slide in U.S. Treasury yields. The move has made it cheaper for consumers to buy homes and refinance their homes, raising hopes for a potential turnaround in the housing market.
There have also been some signs that the housing market may be perking up after a sluggish spring selling season. Sales of previously owned U.S. homes rose more than expected in July, according to data Wednesday from the National Association of Realtors. The National Association of Home Builders also reported in August that confidence among home builders improved slightly from the previous month.
For broker-dealer Strategas, the signs point to a sustained rebound. The firm is advising clients to keep betting on a rise in home-builder shares, adding that it would recommend scooping up shares of D.R. Horton (DHI) following pullbacks.
“The persistency from the home-building and housing-related names remains notable in our work,” the firm said in a note.
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