Following the winter chill, the housing market had been
undergoing a steady recovery. However, recently released data
suggests that home buyers seem to be wary of making purchases at
the moment. The latest of these negative reports reveals that
pending home sales declined in June after three consecutive months
of solid growth.
Pending, New Home Sales Drop
Data released by the national association of realtors on Monday
revealed pending home sales dropped 1.1% to 102.7 in June from
May's revised figure of 103.8. The drop in pending home sales in
June was in contrast to the consensus estimate of a rise of 0.3%.
The decline in pending home sales numbers negatively impacted home
builder stocks. The SPDR S&P Homebuilders (XHB) declined almost
1.6%, the largest decliner among the S&P 500 sectors. Key
housing stocks from the sector such as Toll Brothers Inc. (
), PulteGroup, Inc. (
), Lennar Corp. (
), KB Home (
), DR Horton Inc. (
) and Beazer Homes USA Inc. (
) decreased 1.5%, 0.9%, 2.1%, 1.7%, 0.6% and 2.8%, respectively.
The report followed discouraging new home sales numbers. Last
Thursday, new single-family houses decreased 8.1% to 406,000 in
June. New home sales registered its biggest drop in almost a year.
Existing Home Sales Peak, Home Price Growth Slows
In contrast, data released last week reveal existing home sales
increased 2.6% in June. This metric increased to a seasonally
adjusted annual rate of 5.04 million in June from May's
upwardly-revised figure of 4.91 million. This was also more than
the consensus estimate of 4.98 million. Existing home sales rose
for the third consecutive month in June, touching the highest level
since Oct 2013.
Additionally, data released yesterday shows home price growth is
slowing. S&P/Case-Shiller Home Price Indices data revealed that
the 20-City composite index, the leading measure of U.S. home
prices, rose 9.3% year on year in May. However, the rate of growth
was down from April's year-on-year rise of 10.8%.
A Choppy Recovery
Taken together, data reveals that a recovery is indeed underway,
albeit a choppy one. Home price growth may have declined to single
digits in May, but this fall comes after a series of increases.
Meanwhile, wage growth remains stagnant even though the job market
has turned the corner.
Credit conditions also remain unfavorable since lending standards
remain extremely stringent. This has prevented buyers from
benefiting from low mortgage rates. The majority of home sales can
be attributed to buyers who have good credit scores and are ready
to make large cash downpayments. Most of these buyers are also
likely to purchase expensive homes.
Here we will list 3 stocks that may witness further downside due to
these factors. These stocks have witnessed downward estimate
revisions recently. Moreover, share prices for each of these stocks
have also declined considerably. These stocks carry either a Zacks
Rank #4 (Buy) or Zacks Rank #5 (Strong Buy).
Hovnanian Enterprises Inc.
) is a homebuilding company which designs, constructs and sells
single family homes, townhouses, condominiums and active adult
homes. It also offers financial services to its customers,
including mortgage loans and title services. The stock holds a
Zacks Rank #5 (Strong Sell) and earnings for the current year are
expected to fall 48.9%.
- Hovnanian has seen 4 negative revisions in the last 60 days for
the current quarter and 3 negative revisions for current year
estimates. Quarterly earnings consensus has declined from 10 cents
a share to 7 cents a share. Yearly earnings consensus has dropped
from 19 cents a share to 8 cents.
- The stock has lost 16.7% over the last four weeks.
DR Horton Inc.
is one of the leading national homebuilders. The company is
primarily engaged in the construction and sale of single-family
houses both in the entry-level and move-up markets. D.R. Horton
operates through two segments: Homebuilding and Financial Services.
The Homebuilding segment comprises six reporting regions and
derives revenues primarily from the sale of completed homes. The
stock holds a Zacks Rank #4 (Sell).
- DR Horton has seen 4 negative revisions in the last 30 days for
the current quarter and 7 negative revisions for current year
estimates. Quarterly earnings consensus has declined from 53 cents
a share to 51 cents a share. Yearly earnings consensus has dropped
from $1.75 cents a share to $1.63.
- The stock has lost 12.6% over the last four weeks.
Ryland Group Inc.
) is a leading national homebuilder and mortgage-related financial
services firm. The financial services segment complements the
company's homebuilding activities by providing various
mortgage-related products. The stock holds a Zacks Rank #4 (Sell)
and earnings for the current year are expected to fall 13.2%.
- Ryland Group has seen 1 negative revision in the last 30 days for
the current quarter and current year estimates. Quarterly earnings
consensus has remained flat. However, yearly earnings consensus has
dropped from $3.03 a share to $3.01.
- The stock has lost 9.5% over the last four weeks.
Despite recent negative reports, many economists are of the view
that the housing recovery will continue. However, it may be some
time, possibly next year, before the recovery gains momentum. This
is why it may be a good idea to drop these stocks from your
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PULTE GROUP ONC (PHM): Free Stock Analysis
LENNAR CORP -A (LEN): Free Stock Analysis
TOLL BROTHERS (TOL): Free Stock Analysis Report
KB HOME (KBH): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis
BEAZER HOMES (BZH): Free Stock Analysis Report
HOVNANIAN ENTRP (HOV): Free Stock Analysis
RYLAND GRP INC (RYL): Free Stock Analysis
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