Wedbush Sees Mortgage Rate Trends To Drive Homebuilders Prospects - Cavco Indus (NASDAQ:CVCO), Skyline Champion (NYSE:SKY), Century Communities (NYSE:CCS), D.R. Horton (NYSE:DHI)

Wedbush analyst believes investors in Homebuilders have to first make a call on 2023's mortgage rate trends.
The analyst noted that stable or declining rates should support owning builders, and a rising or volatile rate environment may result in underperformance versus the market.
The analyst assumes a favorable rate environment in 2023 should support owning affordable builders that can deliver homes in a timely fashion.
Related: What's Next For Stocks After Fed Issues 0.5% Rate Hike, Raises 2023 Inflation Outlook?
The analyst views the Outperform rated Cavco Industries Inc CVCO, Skyline Champion Corp SKY, D.R. Horton, Inc. DHI, and Century Communities Inc CCS as builders that fit that description.
Mid-single digit to low double-digit percentage declines Y/Y in 2023 for housing starts and new single family sales and double-digit percentage drops in public builder EPS are in the view, the analyst said.
In 2024, the macro forecasters the analyst monitors expect double-digit Y/Y percentage gains for single family starts and new single family sales with a mid-single digit decline in multifamily starts.
Consumers have shown a preference for quick move homes (closing in less than 90 days) during C2H22, which may be another tailwind for spec builders heading into 2023, cited the analyst.
The analyst believes gross margins will likely suffer near term as the spec builders move through older inventory.
Once that is complete (C2Q23 or C3Q23), the analyst anticipates the spec builders should have more affordable inventory available for consumers.
In October 2022, manufactured housing shipments declined 6% Y/Y, which was the first negative comp for the year, noted the analyst.
The analyst believes the mortgage rate-driven cancellations that Cavco and SKY both discussed on their most recent conference calls probably contributed to the negative result.
Also Read: Homebuilder Confidence Continues To Fall, Analyst Expects Industry To 'Slow Further In 2023'
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