NEW YORK (AP) -- Shares of homebuilding companies were mixed Monday as the broader market fell. A new report by Goldman Sachs analysts predicts that gradually rising interest rates won't slow the housing market recovery in the near future and new home sales will increase 16 percent annually through 2017.
U.S. builders stepped up home construction in May and applied for permits to build single-family homes at the fastest pace in five years, the government reported last week. And for the first time in seven years, most builders are optimistic about home sales, the National Association of Home Builders/Wells Fargo builder sentiment index showed.
The signs point to a sustained gradual recovery in housing, which remains a key source of growth for the economy.
Shares of homebuilders are closely tied to the health of the housing market. They have been rising recently as steady hiring and low mortgage rates encouraged more people to buy homes. But share prices were weakened last week by fears that the Federal Reserve's plans to scale back its bond purchases could spell trouble for the housing market, as the move could drive mortgage rates higher.
The Goldman Sachs report notes that after the housing boom, then the bust and the recent recovery, homebuilding company stocks "have been on a wild ride." Analysts Eli Hackel and Devi Biswal say they expect moderate gains in share prices over the next 12 months, but with wide variations.
Builders that are good buys are dominant in geographic areas with strong potential for growth and cater to more affluent homeowners, the analysts say.
That makes the analysts buyers of Ryland Group Inc., Meritage Homes Corp. and Toll Brothers Inc., and sellers of Hovnanian Enterprises Inc. and PulteGroup Inc.
The strongest markets, according to the report, are Charlotte, N.C. and Jacksonville and Orlando, Fla.; the worst are Chicago, New York and Philadelphia.
Fresh indications will come this week from new home sales for May, to be released Tuesday by the Commerce Department, and the National Association of Realtors' pending home sales index for May on Thursday.
In afternoon trading, Toll Brothers rose 27 cents to $31.97; Meritage declined 45 cents to $42.61, Ryland gained 14 cents at $38.70, Pulte lost 41 cents at $18.40, Hovnanian fell 18 cents to $5.41; KB Home fell 52 cents, or 2.6 percent, to $19.31, Lennar Corp. increased 12 cents to $35.37 and D.R. Horton Inc. was unchanged at $21.02.
- Goldman Sachs