Shares of companies in the real estate services and home building space backed way off their intraday highs on Tuesday, as another surge in Treasury yields to a more-than decade high took the early shine off surprisingly strong economic data.
Despite a growing consensus that the housing market is in recession, the U.S. Commerce Department reported earlier that new homes sales in August soared 28.8% to a seasonally adjusted annual rate of 685,000, from a revised 532,000 in July, while analysts polled by The Wall Street Journal were expecting, on average, a drop to 500,000.
Meanwhile, the yield on the 10-year Treasury note
TMUBMUSD10Y,
which is the benchmark for mortgage rates, climbed 0.098 percentage points to 3.976%, the highest yield since April 2010. The coincident jump in mortgage rates has made homes less affordable and slowed buying.
“With mortgage rates up making new highs again after the September [Federal Reserve] decision, August’s upside surprise in home sales is unlikely to be repeated,” said Comerica Bank Chief Economist Bill Adams.
Also read: ‘The housing market may have to go through a correction’: Mortgage rates hit 6.29%, Freddie Mac says.
Real estate services company Redfin Corp.’s stock
RDFN,
jumped as much as 5.8% intraday, before paring gains to be up 2.3% in afternoon trading, in the wake of the data. That put the stock on track to snap an record-tying eight-session losing streak, in which it plunged 28.3% to close Monday at a record low.
Also in the real estate services space, shares of Zillow Group Inc.
Z,
ZG,
gained 1.0%, Anywhere Real Estate Inc.
HOUS,
hiked up 2.6% and Douglas Elliman Inc.
DOUG,
advanced 1.0%, with those stocks pulling back from earlier gains ranging from 3.6% to 5.9%.
RE/MAX Holdings Inc.’s stock
RMAX,
reversed an earlier intraday gain of as much as 2.6% to fall 0.8% in recent trading.
The pullback in the stocks comes as the S&P 500 index
SPX,
pulled an intraday U-turn, to be down 0.5% in afternoon trading, after being up as much as 1.7% earlier.
Meanwhile, the SPDR S&P Homebuilders exchange-traded fund
XHB,
swung to a loss of 0.2% from an intraday gain of as much as 2.1%.
Among the ETF’s home builders, Lennar Corp.’s stock
LEN,
slumped 0.6%, but had been up 3.0% at its intraday high.
Raymond James analyst Buck Horne reiterated the market outperform rating he’s had on Lennar for at least the past three years while raising his stock price target to $90 from $75. The new target implies TK% upside from current levels.
Horne said that while he “cannot sugarcoat the difficult period ahead for new home sales” as housing affordability remains “deeply challenged” for an indefinite period, he believes Lennar is poised to take “significant” market share given its ability to make rapid price adjustments and meaningful cost reductions, as well as quickly pivot to single-family “build-for-rent” construction.
Elsewhere, shares of PulteGroup Inc.
PHM,
fell 0.9%, KB Home
KBH,
dropped 1.9%, D.R. Horton Inc.
DHI,
shed 1.2% and Toll Brothers Inc.
TOL,
slid 0.9%, after all were up nearly 2% earlier in the session.
Among home improvement retailers, the stocks of both Home Depot Inc.
HD,
and Lowe’s Companies Inc.
LOW,
were up 0.6%, but both had been up nearly 3% at their intraday highs.
