While some big blue chip stocks revealed lackluster results for the third quarter, homebuilders and home construction-related ETFs climbed on strong earnings and forward guidance.
On Tuesday, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) rose 1.8% and iShares U.S. Home Construction ETF (NYSEArca: ITB) gained 2.6%, exhibiting a rare respite from the back-to-back sell-off in recent weeks.
Bolstering the home construction sector, PulteGroup (etftrends.com/quote/PHM) revealed a better-than-expected quarterly earnings of $1.01 per share, compared to the $0.60 per share a year ago for the same period.
“Consistent with our stated strategies, PulteGroup continues to successfully deliver strong earnings growth, while achieving high returns on invested capital and equity,” Company President and CEO, Ryan Marshall, said in a note. “By focusing on intelligently growing our business, while realizing increased operating efficiencies, we leveraged 25% growth in homebuilding revenues into a 74% gain in earnings to $1.01 per share.”
PHM shares jumped 8.8% on the favorable third quarter results.
Furthermore, the No. 3 U.S. homebuilder raised its fourth-quarter projections and eased concerns that rising mortgage rates would harm homebuyers’ affordability or pressure the company’s bottom line.
“The critical underpinnings that have supported a slow but steady housing recovery, including a strong economy, low unemployment, high consumer confidence and limited home inventory, remain solidly in place,” Marshall added. “While buyer concerns around affordability and rising mortgage rates appear to have impacted near term market dynamics, traffic trends indicate that buyer interest levels are still high and that the overall housing recovery remains on track.”
Related: A Contrarian Bet on Homebuilder ETFs
The housing market has been struggling from a short supply of homes and rising prices, which has diminished affordability for potential buyers, Reuters reports.
Furthermore, mortgage rates has pushed higher to the 5% threshold for the first time in several years, raising concerns over a potential slowdown in the industry for the year ahead as the economy sees full employment saturation.
For more information on the housing market, visit our homebuilders category.