Homebuilder Stock Woes Deepen as Rates Hurt Affordability

In a week where homebuilding stocks were faced with surging US Treasury yields and data showing weakening demand for homes, one analyst is throwing in the towel on the sector.

Raymond James analyst Buck Horne downgraded his ratings on all the builders in his coverage, including Lennar Corp. and Toll Brothers Inc., citing surging mortgage rates.

“Begrudgingly, we are tapping out on the homebuilders after a relentless 200 [basis point] increase in 30-year mortgage rates over the past 2.5 months,” Horne writes in a Friday note. “The housing sector and homebuilders must now brace for a Fed-assured hard landing (you win, Jerome), with significantly lower absorption rates and downward pressure on new home prices.”

Homebuilders have come under relentless pressure this year, with prospective buyers contending with a surge in borrowing costs as the Federal Reserve stays on its aggressive path of interest-rate hikes. US economic data this week has also showed housing starts declining, adding to evidence that steep mortgage rates are weakening demand.

Investor sentiment, meanwhile, has declined for the 10th straight month, with the S&P Supercomposite Homebuilding Index has fallen about 37% so far this year. It rose 1.3% this week, trailing the S&P 500’s 4.7% gain.