Homebuilder exchange traded funds are leading the market on robust early earnings numbers ahead of new and pending home sales later this week.
The SPDR S&P Homebuilders ETF (NYSEArca: XHB) rose 2.2% Tuesday and the iShares U.S. Home Construction ETF (NYSEArca: ITB) gained 2.9%. XHB is up 14.6% year-to-date while ITB is up 5.3%.
Lennar Corp. (NYSE: LEN) revealed earnings surged 39% for the quarter ended Aug. 31 on improving revenue, along with increased orders and deliveries, reports Nathalie Tadena for the Wall Street Journal.
“We continue to see long-term fundamental demand in the market driven by the significant shortfall of new single-family and multifamily homes built over the last five years,” Lennar Chief Executive Stuart Miller said in the article.
KB Home (NYSE: KBH) also showed better-than-expected third-quarter earnings on higher prices and greater sales as a tight supply of existing homes pushed many buyers to seek out new homes, reports Prashant Gopal for Bloomberg.
Homebuilders have weakened in the summer months as rising mortgage rates deterred home buyers.
“We believe that the recent slower pace of the recovery caused by an uptick in mortgage interest rates is a temporary effect, and we expect to see steady upward demand for housing as consumers adjust to both higher rates and pricing,” KB Home Chief Executive Officer Jeffrey Mezger said in the Bloomberg article.
Bruce Gross, chief financial officer of Lennar, pointed out that homebuilders are benefiting from banks’ less stringent lending requirements, according to Financial Times. For instance, banks are demanding lower credit scores and down-payment requirements in some states have dropped to as low as 5%.
On Tuesday, the S&P Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions, showed a gain of 0.6% in July, down from 0.9% in the prior two months, according to Bloomberg data.
On Wednesday, Sept. 25, investors will be waiting on new home sales data for August. New home sales plunged 13.4% to 394,000 in July after a 3.6% gain in June. Analysts anticipate an average 425,000 gain for August.
Market observers will also be watching for August pending home sales on Thursday, Sept 26. Pending home sales were down 1.3% in July after a 0.4% decline in June. Analysts expect another 1.0% dip in August.
SPDR S&P Homebuilders ETF
For more information on the housing sector, visit our homebuilders category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own XHB.