Wedbush Sees Mortgage Rate Trends To Drive Homebuilders Prospects

  • 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.
  • RelatedWhat's Next For Stocks After Fed Issues 0.5% Rate Hike, Raises 2023 Inflation Outlook?
  • The analyst views the Outperform rated Cavco Industries Inc CVCOSkyline Champion Corp SKYD.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 ReadHomebuilder Confidence Continues To Fall, Analyst Expects Industry To 'Slow Further In 2023'
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