Sales of new homes that aren't complete or even under construction yet rose last month as builders rush to meet demand for cheaper housing amid the tight supply of existing homes.
Builders Meritage Homes (MTH) and Ryland (RYL) reported better-than-expected earnings growth, as did hardwood flooring retailer Lumber Liquidators' (LL).
Annualized sales of new single-family homes hit a five-year high of 497,000 in June, up 8.3% from a downwardly revised May, the Commerce Department said Wednesday. Analysts expected 481,000.
Homes below $200,000 saw the biggest gains, helping cut the median price by 5%, the second straight monthly drop.
Investors have snapped up cheaper existing homes, putting pressure on builders to boost inventory.
Sales of homes not yet under construction jumped 38%, and homes still being built rose 7%. Completed-home sales fell 13%.
The recent spike in mortgage rates could be causing buyers to shift to lower-priced homes, but the trend still points to further appreciation, says Gennadiy Goldberg, a TD Securities strategist .
Rising sales of unfinished homes is consistent with buyers locking in rates, he added: "People are rushing to take advantage of rates.
Fewer completed homes are available, while homes not started are increasingly made available for sale.
But June sales figures don't capture higher borrowing costs' full impact. July data show mortgage applications for buying a home falling, sliding 2.1% last week to a four-month low, the Mortgage Bankers Association says.
The 30-year fixed rate did fall to 4.58% from a two-year-high 4.68%, MBA says. And builders remain confident demand will be strong as homes stay affordable historically.
"Buyers may conclude that they missed the absolute bottom of the market in terms of prices and interest rates, but they also recognize that both are still a bargain in terms of the amount of house you can buy," said Meritage CEO Steven Hilton in a statement.
The builder's Q2 earnings tripled to 74 cents a share, burying forecasts by 28 cents. Sales leapt 59.5% to nearly $450 million, far above views for $414 million.
Meritage also lifted its full-year profit guidance to $2.65-$2.85 a share from $2.20-$2.45, exceeding analyst expectations of $2.35.
But new order growth of 21% missed some estimates. The stock closed down 4%, along with most homebuilders, as Treasury yields rose Wednesday.
Mortgage rates should keep rising after the Federal Reserve kept them artificially low, says JMP Securities' Peter Martin.
Even though Meritage had a "monster quarter," gains are "going to decelerate because of the impact of rates," he warned.
Ryland's EPS soared 471% to 80 cents, crushing forecasts for 63 cents. Revenue jumped 68% to $493 million, just over views.
Shares rose late, erasing part of their 3.5% regular session loss.
Lumber Liquidators earned 73 cents a share, up 70% and 12 cents better than expectations. Sales rose 22% to $257.1 million, beating views of $244.2 million.
CEO Rob Lynch credits strong spring remodeling, a sign that more homeowners might put their properties on the market. The hardwood flooring seller also raised 2013 targets. Shares spiked nearly 7% to a new high.