U.S. homebuilders will feel the pinch in prices due to rising mortgage rates and inflation
Join now for FREE unlimited access to Reuters.com
April 25 (Reuters) – U.S. homebuilders are likely to find it harder to raise house prices in coming months as rising mortgage rates and inflation reduce demand, industry analysts said, threatening potentially a breakneck pace of earnings growth.
DR Horton Inc (DHI.N), Lennar Corp (LEN.N), PulteGroup Inc (PHM.N) and other homebuilders head for strong earnings season, but U.S. housing boom shows signs of slowing inflation this high puts the US Federal Reserve on track for aggressive rate hikes.
The rate on the 30-year fixed mortgage, the most popular home loan in the United States, exceeded 5% for the first time in more than a decade, making homes less affordable, especially for low-income groups. income and first-time home buyers.
Join now for FREE unlimited access to Reuters.com
“First-time home buyers are taking a double or even triple whammy right now,” said Ralph McLaughlin, chief economist at real estate data firm Kukun, adding that the rate of price growth is expected to “absolutely cool down in this moment”.
Home prices have soared since the pandemic as buyers opted for larger homes in the suburbs, encouraged by low mortgage rates and the shift to working from home. Median existing home prices jumped 15% from a year earlier to an all-time high of $375,300 in March. Read more
Over the past year, DR Horton, Lennar and PulteGroup have posted strong profits as strong demand has allowed them to charge higher prices.
In the next set of results, however, the focus will be on how these companies plan to handle a potential drop in demand and higher construction costs due to rising inflation.
U.S. home sales fell to their lowest level in nearly two years in March. The share of adults planning to buy a home within a year also fell to the lowest since mid-2020, according to a report by the National Association of Home Builders. Read more
“We expect price increases to slow and buyers in bidding wars to face fewer competing offers,” Redfin chief economist Daryl Fairweather said in a report.
FUNDAMENTALS
* Analysts estimate DR Horton’s second-quarter revenue to rise 18% to $7.62 billion when results are released on April 26
* Earnings per share is estimated at $3.37
* The stock has lost around 34% of its value this year
* For Lennar, analysts estimate Q2 revenue will rise 36.9% to $8.16 billion
* Earnings per share is estimated at $3.95
* The stock has lost around 33% of its value this year
* PulteGroup Q1 revenue expected to increase 12.6% to $3.07 billion
* Earnings per share is estimated at $1.71
* The stock has lost around 37% of its value this year
WALL STREET FEELING
* For DHI, 15 of 21 analysts rate the stock “buy” or higher, while 6 have a “hold” rating
* Median price target is $115
* For LEN, 14 out of 20 analysts rate the stock “buy” or higher, while 5 have a “hold” and a “sell” rating
* Median price target is $121.5
* For PHM, 10 of 18 analysts rate the stock “buy” or higher, while 8 have a “hold” rating
* Median price target is $65.5
Join now for FREE unlimited access to Reuters.com
Reporting by Kannaki Deka in Bangalore; Editing by Sweta Singh and Devika Syamnath
Our standards: The Thomson Reuters Trust Principles.