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SPDR Homebuilders (XHB): 2017 Could Be A Volatile Year - Wedbush

December 29, 2016 8:16 AM EST
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Price: $164.55 +1.54%

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Wedbush analyst, Jay McCanless thinks 2017 could be a volatile year for home builders as the country digests Trump’s housing agenda. This leads him to focus on on liquid names like D.R. Horton, Inc (NYSE: DHI), CalAtlantic Group Inc (NYSE: CAA), and TRI Pointe Group Inc (NYSE: TPH). Investors should be prepared to make quick moves if legislation or rising interest rates cause an overall industry slowdown that could impact the S&P Homebuilders (NYSE: XHB) as well as individual names.

That said, the primary catalysts of housing demand (jobs and consumer confidence) are trending positively. Competition from existing homes for sale has been slim in the Top 25 markets, and we do not see a catalyst to change that trend. Mortgage availability in spring 2017 should be better than in spring 2016 due to a relaxation of mortgage lending standards (lower minimum credit scores and exceptions to the 43% debt-to-income limits) by the GSEs in mid-2016.

The analyst also offered a historical perspective into rising rates and noted that from May 2013 to September 2013, mortgage rates rose 121bp. This produced an average homebuilder stock return of -12.2% during that period and negatively affected order growth in the back half of CY13 before recovering by C1Q14. Since the Trump victory, the weekly average 30-year mortgage rate has risen approximately 64bp to 4.41% for the week ended December 16,



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