Homebuilders are on a roll, with the stocks rallying to the highest since January 2022, after industry bellwether D.R. Horton Inc. reported better-than-expected orders and results for the second-quarter.
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The sector is making a comeback, an index tracking the industry is up 28% so far this year coming off of one of its worst years since 2018. The group fell 25% in 2022.
D.R. Horton, the nation's largest homebuilder, led the group Thursday, rising 5.6% and closing at its highest level since Dec. 31, 2021.
D.R. Horton Inc. signage stands in front of homes under construction at the Eastridge Woods development in Cottage Grove, Minnesota, U.S.
Daniel Acker/Bloomberg
"This could support a near-term wave of upward earnings revisions for the company and the group," Bloomberg Intelligence analyst Drew Reading wrote in a note. "Builders are benefiting from a lack of competitive supply and a favorable response from consumers to more aggressive pricing, which hasn't materialized in the resale market."
Industry peers Lennar Corp. and KB Home also gained hitting their highest level since early 2022, as the 10-year Treasury yield, an indicator for the direction of mortgage rates, fell to about 3.5%.
Investors continued to snap up homebuilder shares despite Thursday's existing home sales print, which slumped in March after climbing in February. The latest data could be "a sign that the spring homebuying rush may fizzle before it even gets started," Peter Essele, head of portfolio management at Commonwealth Financial Network wrote in a note.
With elevated prices and higher mortgage rates still plaguing a previously robust market, "the prospect of a recession on the horizon means the housing market is ripe for another correction," Essele warned.
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