Home construction stocks and homebuilder-related exchange traded funds climbed Tuesday after D.R. Horton (NYSE: DHI), the largest U.S. homebuilder, reported its highest growth in orders in over a year, revealing the underlying strength of the housing market.
On Tuesday, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) rose 3.0%, iShares U.S. Home Construction ETF (NYSEArca: ITB) gained 4.0% and PowerShares Dynamic Building & Construction Portfolio (NYSEArca: PKB) advanced 3.0%.
Meanwhile, DHI shares jumped 6.4% Tuesday, it’s largest intraday percentage jump since 2015. DHI makes up 4.6% of XHB’s underlying holdings and 12.6% of ITB.
D.R. Horton and other homebuilders also strengthened on data showing U.S. home resales dipped more than expected in December as the supply of houses on the market fell to levels last seen in 1999, reports Arunima Banerjee for Reuters.
Horton revealed that orders, an indicator of future revenue for homebuilders, increased 14.6% to 9,241 homes in the quarter ended December 31. The company saw good sales trend in January very early into Spring.
The company also calculated that the average selling price for the quarter was $297,000, or up 2% year-over-year.
“This was an exceptionally strong quarter and speaks to the company’s ability to deliver on its operational and financial targets,” RBC Capital Markets analyst Robert Wetenhall wrote in a note.
Homebuilders remain bullish for the months ahead. According to the latest National Association of Home Builders/Wells Fargo national housing indices, confidence among industry leaders hit an 11 year high in December and continued to remain strong in January as builders voiced confidence over Trump’s skepticism regarding numerous business regulations as well as buyer demand through the first half of this year, BuilderOnline reports.
The strong results come in as the country experiences a rise in mortgage rates on the back of increased interest rates. Rates are expected to push higher as the Federal Reserve eyes three more rate hikes this year.
Looking ahead, the Trump administration’s decision to suspend a plan to reduce mortgage insurance premiums on federally insured home loans could weigh on the home construction sector.
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