'More Downside In Housing': Homebuilder Sentiment Drops To Lowest Level In 10 Years

Zinger Key Points
  • The NAHB has reported its lowest housing market index reading since June 2012.
  • "Residential investment will likely be a drag on economic growth in Q4," one economist says.

Homebuilder stocks traded lower on Wednesday after yet another economic data point indicated the downturn in the U.S. housing market has continued in November.

What Happened? The National Association of Home Builders monthly housing market index came in at 33 for November, down from 38 in October and missing economist estimates of 36. November marked the 11th consecutive monthly decline for the index as rising mortgage rates weigh on housing demand.

Related Link: 4 Home Depot Analysts Discuss Q3 Earnings Beat, Worrisome Housing Market Trends

Each of the three components that make up the index were down in November. Current sales conditions dropped six points to 39, while buyer traffic fell five points to 20. Looking ahead, sales expectations for the next six months slid four points to 31.

The overall housing market index reading of 33 is its lowest level since June 2012.

Why It's Important: Shares of homebuilder stocks dropped on Wednesday as investors grow increasingly cautious about the outlook for the U.S. housing market. LGI Homes Inc LGIH shares were down 3.8% on Wednesday. D R Horton Inc DHI was down 1.3% and Lennar Corp LEN was down 1.4% as well.

Related Link: Is It Time Buy The Dip In Homebuilder Stocks? KeyBanc Says Yes, Names Top Picks

Jeffrey Roach, Chief Economist for LPL Financial, said Wednesday that investors can expect "more downside in housing" following the latest NAHB report.

"Housing activity will likely slow further as the economy fully absorbs the impact from tighter monetary policy," Roach said. "Residential investment will likely be a drag on economic growth in Q4."

Benzinga's Take: Rising mortgage rates seem to have shifted the focus of homeowners from buying and flipping to renovating and upgrading. Despite the significant housing market headwinds, home improvement companies Home Depot Inc HD and Lowe's Companies Inc LOW each reported relatively strong third-quarter earnings reports.

Now Read: CPI Shows Rents Are Rising, Zillow Forecasting Drop In 2023; Professor Says Fed's Powell Will 'See The Light'

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Posted In: Analyst ColorNewsEcon #sAnalyst RatingsJeffrey RoachLPL FinancialNational Association of Home Builders
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