Mortgage rates should keep falling, boost home sales, analysts say

By Tommy Kilgore

Housing demand is expected to remain weak in the first half of 2023, but estimates are on the downside, one analyst said.

Shares of homebuilders were broadly buoyed on Wednesday after BofA Securities said it sees a “good setup” for the sector, with lower mortgage rates on the horizon.

Analyst Rafe Jadrosich said that when the construction sector failed in 2022, and the decrease in demand in the second half of the year because the mortgage has more than doubled, He is still cautious about housing needs, especially in the first half of 2023, amid economic concerns. .

However, Jadrosich has several reasons for believing that home builders do not wait for demand to subside before they start working together:

“The Macro is a concern, but housing demand and construction sales are in financial terms, and we expect inflation and commodity prices to be more important in 2023,” the Jadrosich wrote in a letter to clients.

The iShares Home Construction exchange-traded fund (ITB) rose 1.6% in afternoon trading, with 46 of the 48 sectors trading higher. That was more than the S&P 500’s 0.5% gain.

Shares of Toll Brothers Inc. (TOL) rose 2.7% and shares of PulteGroup Inc. (PHM) jumped 1.8% after Jadrosich upgraded builders to buy from uncertainty, and Lennar Corp. (LEN) traded up 1.3% after. he raised his position to neutral from negative.

On the other hand, NVR Inc. (NVR) up 1.3% after Jadrosich reiterated his sell order and raised his price to $5,500 from $4,900. Jadrosich said NVR is his top pick in the sector, as the stock has historically outperformed in a volatile environment and during periods of weak home sales.

BofA’s Jadrosich won’t be the only one on Wednesday in favor of home builders next year.

The biggest gainer in the home-building ETF is shares of TopBuild Corp. (BLD), which rose 5.2%, and Installed Building Products Inc. (IBP), which rose 4.6%, after Deutsche Bank’s Joe Ahlersmeyer upgraded both companies to buy. stop.

With interest rate risks “appearing to have moderated,” Ahlersmeyer said it has been “more profitable” on sales that feature new homes.

“(W)e feel growing hope in the recovery process for housing, which can return many people back to conditions more in line with the middle of the cycle, even if demand for new buildings is only to demonstrate stability,” writes Ahlersmeyer.

After a 26.9% decline in 2022, the real estate ETF has gained 7.7% so far in 2023. By comparison, the S&P 500 is up 2.6% year to date now after falling 19.4% last year.

-Tommy Kilgore

 

(Conclusion) Dow Jones Newswires

01-14-23 0958ET

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