One hot housing stock could soon see big headwinds
Housing stocks have been on a tear this year , and homebuilder Lennar (NYSE: LEN) is no exception. Its shares have rallied 42 percent in 2017, far outpacing the S&P 500 (INDEX: .SPX) . However, multiple fundamental headwinds have the potential to place pressure on the stock going forward, according to Mark Tepper, president at Strategic Wealth Partners. Here are his reasons.Improving labor markets, declining unemployment rates and a limited home supply have indeed proven supportive for home prices and the homebuilders' top lines. Still, single-family housing starts are up less than 1 percent year-over-year.Higher interest rates on the back of a pickup in inflation expectations dim the affordability outlook. Similarly, a red-hot economy should stoke inflation expectations, which would likely in turn take the 10-year Treasury and mortgage rates higher.The threat of changes to mortgage interest deductibility in pending tax reform also hinders the outlook for housing affordability, and sky-high lumber prices are biting into margins.Should new homes become less affordable, at a time when millennials are taking steps into the housing market, this could place homeownership out of reach.Bottom line: Shares of homebuilder Lennar could face headwinds on multiple fronts after a big run this year. Housing stocks have been on a tear this year , and homebuilder Lennar (NYSE: LEN) is no exception. Its shares have rallied 42 percent in 2017, far outpacing the S&P 500 (INDEX: .SPX) . However, multiple fundamental headwinds have the potential to place pressure on the stock going forward, according to Mark Tepper, president at Strategic Wealth Partners. Here are his reasons. Improving labor markets, declining unemployment rates and a limited home supply have indeed proven supportive for home prices and the homebuilders' top lines. Still, single-family housing starts are up less than 1 percent year-over-year. Higher interest rates on the back of a pickup in inflation expectations dim the affordability outlook. Similarly, a red-hot economy should stoke inflation expectations, which would likely in turn take the 10-year Treasury and mortgage rates higher. The threat of changes to mortgage interest deductibility in pending tax reform also hinders the outlook for housing affordability, and sky-high lumber prices are biting into margins. Should new homes become less affordable, at a time when millennials are taking steps into the housing market, this could place homeownership out of reach. Bottom line: Shares of homebuilder Lennar could face headwinds on multiple fronts after a big run this year.
More From CNBC
