Sector Snap: Home sales data weighs builder stocks

Homebuilder stocks decline after government data on new-home sales for June disappoints

Associated Press

BOSTON (AP) -- Shares of homebuilders fell on Wednesday after the government reported sales of new homes declined sharply in June, a disappointment after the indicator jumped to a two-year high the previous month.

Sales of new homes dropped 8.4 percent last month to a seasonally adjusted annual rate of 350,000, the Commerce Department said. The rate was the lowest in five months, and new-home sales in the Northeast tumbled 60 percent, to the lowest level since November.

Analysts said the report suggests a slow and uneven housing recovery amid the weak job market.

"While a housing recovery is under way, it is most certainly not 'all good,'" Dan Greenhaus, chief global strategist at the investment firm BTIG, said in a note to clients. "Fits and starts are to be expected, and clearly this summer is one of the 'fits.'"

Although June's new-home sales came in lower than expected, sales in May and April were revised much higher. And June's sales pace is still 15 percent higher than it was in the same month a year ago. Other recent indicators have pointed to a broad housing market recovery beginning to set in, and builders have been more confident, breaking ground on more homes.

Homebuilder stocks have also rallied recently. An index of builder stocks is up more than 70 percent from a low in early October. Citi Investment Research analyst Will Randow said in a client note that current prices don't fully account for the number of years it may take to return to more typical levels of home building and sales.

Randow said he expects the stocks to continue what he called a "valuation correction period," after their average 48 percent increase this year.

Though new homes represent less than 20 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

But, five years into the downturn, new-home sales remain well below the 700,000 annual rate that economists equate with healthy markets. The latest monthly report pegs sales at just half that annual rate.

In midday trading, shares of Meritage Homes Corp. fell the most sharply among major homebuilder stocks. Scottsdale, Ariz.-based Meritage lost $1.26, or 3.6 percent, to $33.42.

Beazer Homes USA Inc. fell 8 cents, or 3.2 percent, to $2.40, while Lennar Corp. lost 75 cents, or 2.5 percent, to $29.51.

Toll Brothers Inc. declined 69 cents, or 2.3 percent, to $29.75; PulteGroup Inc. lost 21 cents, or 2 percent, to $10.27; Hovnanian Enterprises Inc. declined 11 cents, or 4.5 percent, to $2.35; and KB Home fell 34 cents, or 3.5 percent, to $9.30.

Elsewhere in the sector, Standard Pacific Corp. declined 9 cents, to $6.08; Ryland Group Inc. lost 60 cents, or 2.39 percent, to $25.33; M.D.C. Holdings Inc. fell 86 cents, or 2.6 percent, to $31.53; and, M/I Homes Inc. slipped 14 cents, to $16.52.

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