HOV - Rate-sensitive homebuilder stocks shake off Powell's hawkish remarks

2023-03-07 12:44:25 ET

A slew of homebuilder stocks changed hands in the green in Tuesday afternoon trading, bucking the broader stock market's risk-off session in which Fed Chair Jerome Powell's Senate testimony prompted market participants to ratchet up their bets for higher-for-longer interest rates.

Among the winners were NVR ( NYSE: NVR ) ( +1.4% ), D.R. Horton ( NYSE: DHI ) ( +1.1% ), KB Home ( NYSE: KBH ) ( +1.3% ), Toll Brothers ( NYSE: TOL ) ( +1% ), Lennar ( NYSE: LEN ) ( +0.9% ), Taylor Morrison Home ( NYSE: TMHC ) ( +0.9% ) and Havnanian Enterprises ( NYSE: HOV ) ( +0.2% ). Also, the S&P 500 Homebuilding Index (SP500-25201030) advanced 0.8% .

The Fed chief signaled that rates could go higher than previously penciled in, citing January's barrage of stronger than expected economic data. "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," Powell said in his prepared testimony before the Senate Committee on Banking, Housing & Urban Affairs.

His remarks in turn opened the door for a more aggressive 50 basis-point rate increase at the March meeting than the 25-bp move that was largely expected prior to the testimony.

The market response to JPow's comments was notable as the policy-sensitive two-year U.S. Treasury yield ( US2Y ) drove up eight bps to 4.97% at the time of writing, while the 10-year note yield ( US10Y ) slipped four bps to 3.94%. In other words, the inversion of the popular 2s10s yield curve deepened to more than 1% -- a spread not seen since 1981 -- in a signal that a recession is inevitable.

Rising interest rates and thus mortgage rates hinder homebuying demand as people would have to make larger monthly mortgage payments. In theory, the destruction of housing affordability negatively impacts homebuilders.

Earlier, Fannie Mae said housing sentiment returned to a near record low in February as mortgage rates reaccelerated during the period .

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