LOW - Homebuilder construction materials stocks climb after housing prices jump

2023-06-27 16:25:07 ET

Stocks in homebuilders, construction materials, and related companies rose robustly on Tuesday after the latest economic reports showed a stronger-than-expected increase in home prices in April and a continuing decline in housing inventory.

iShares U.S. Home Construction ETF ( BATS: ITB ) gained 3.1% in Tuesday morning trading, outpacing the S&P 500 increase of 1.1% and clocking its biggest increase in three weeks.

By individual names, Beazer Homes ( NYSE: BZH ) surged 6.1% , Green Brick Partners ( NYSE: GRBK ) +3.9% , Hovnanian Enterprises ( NYSE: HOV ) +4.5% , Lennar ( NYSE: LEN ) +4.1% , Taylor Morrison Home ( NYSE: TMHC ) +2.3% , and PulteGroup ( NYSE: PHM ) +3.5%.

In the construction materials sector, Owens Corning ( NYSE: OC ) rose 2.6%, Atkore ( NYSE: ATKR ) +4.2% , Fortune Brands ( NYSE: FBIN ) +4.0% , Jeld-Wen Holding ( NYSE: JELD ) +4.2% , Trex ( NYSE: TRX ) +3.5% , and AZEK ( NYSE: AZEK ) +2.9% .

Construction-related retailers Lowe's Cos. ( NYSE: LOW ) advanced 2.6% and Home Depot ( NYSE: HD ) increased 1.9% .

For the overall economy, Comerica's chief economist, Bill Adams sees the Federal Reserve keeping interest rates higher for longer in response to rising home prices.

"In the near-term, the Fed will see the stabilization of housing prices as a reason to keep raising interest rates," Adams said. "Comerica expects the Fed to make a quarter percentage rate hike at its July decision after holding rates steady in June."

And while he expects the Fed to start reducing interest rates in 2024, the central bank will likely move "fairly slowly."

"The federal funds rate is likely to be reduced by only a percentage point over the full year of 2024, closing 2024 at a range of 4.25%-to-4.50%," he said.

More on the Housing Sector and Related Stocks:

• New home sales unexpectedly surged in May
• Home prices rose more than expected in April: S&P CoreLogic Case-Shiller
• FHFA House Price Index jumped past consensus in April
• Century Communities raised to Buy, Green Brick cut to Neutral at B. Riley
• Green Brick Partners: Not Just Another Brick in the Wall
• Owens Corning upgraded to Overweight at Barclays Capital

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