Fall of the Homebuilders

After a tremendous rally, the homebuilders have been selling off recently. The industry group peaked on July 28. Then on August 5, Carl Reichardt of Wachovia downgraded Toll Brothers due to a perceived housing slowdown in the Washington, DC market. Several stocks followed Toll Brothers lowered. Since July 28, the group is down well over 10%.

The news isn’t getting better. Yesterday, the National Association of Realtors reported that existing home sales dropped 2.6% last month. Also, the number of homes for sale on the market increased. Overall, the median home price is now $218,000, a 14.1% increase over last year. Condo sales dropped 5%, compared to a 2.3% drop for single-family homes.

The market’s concern is if this is a minor pullback or the beginning of a long-term trend. Picking a change of direction of a long-term trend is always a dangerous undertaking. Trends can last much longer than you think. However, I think the best and safest assumption is that the homebuilders are due to head lower.

D.R. Horton, the largest homebuilder by market value, is down over 17% since July 28. Toll Brothers and KB Home are both down 15.4% (the homebuilders favor names with initials). M.D.C. Holdings is off 14.9%. Lennar and Centex are both off about 13.6%. Pulte is down 12.9%. The best performers are Champion Enterprises, which is down just 10%, and NVR which is down 9.5%.

Posted by on August 24th, 2005 at 9:27 am


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