In Wednesday’s Forbes Markets Desk video, Investing Editor Matt Schifrin and I discussed the recent stretch of lackluster housing figures, and what it might mean for builders and other housing-related stocks as earnings season dawns:
A months-long rally in housing-related stocks dating back to October has more and more investors eyeing the space, but recent signals out of the housing market are some cause for concern.
The Mortgage Bankers Association’s weekly tally of mortgage applications declined, with a sixth-straight fall in refinancing applications, the January Case-Shiller report on home prices showed further declines and reports on everything from pending sales to housing starts have shown softness after months of improving figures.
Meanwhile, builders KB Home and Lennar both had mixed earnings reports in recent days. The former narrowed its quarterly loss but still fell short of Wall Street estimates, while the latter recorded a decline in profit but still managed to top consensus. Toll Brothers also booked a loss in late February, but its CEO touted a “healthier” housing market, expressing some optimism for the looming spring selling season. (See “This Spring Could Be The Best Home Buying Season In Years.”)
Barry Knapp, head of U.S. equity research at Barclays Capital, said in a Monday interview the recent string of data and earnings out of the housing sector have been “mildly disappointing,” and said there is “room for disappointment” in first-quarter earnings season for both companies tied to the industry and the broader market given the big rally over the last several months.
“Everyone shrugged off the KB Home miss,” Knapp said, "but if you get a few more…”
The housing-related rally off the October bottom has not just been concentrated in the builders either. Home Depot and Lowe's, along with other housing-linked names like Sherwin-Williams and Whirlpool, are up comfortably on the year but could be pressured if the string of weak housing numbers continues and winds up turning up when the companies report earnings for the first quarter.
The SPDR Homebuilders ETF (XHB) is up 27% in 2012, easily outpacing the nearly 12% gain that has the S&P 500 at 1,405 even after a modest pullback Wednesday.
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