The Zacks Analyst Blog Highlights: Toll Brothers, KB Home, Lennar, PulteGroup and D.R. Horton

The Zacks Analyst Blog Highlights: Toll Brothers, KB Home, Lennar, PulteGroup
                               and D.R. Horton

PR Newswire

CHICAGO, Aug. 27, 2013

CHICAGO, Aug. 27, 2013 /PRNewswire/ announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include  the Toll Brothers Inc.
(NYSE:TOL-Free Report), KB Home (NYSE:KBH-Free Report), Lennar Corporation
(NYSE:LEN-Free Report), PulteGroup Inc. (NYSE:PHM-Free Report) and D.R. Horton
Inc. (NYSE:DHI-Free Report).


Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.

Here are highlights from Monday's Analyst Blog:

Homebuilders Slump on New Home Sales

Acting as a deterrent to the surging hopes of a housing recovery, new home
sales in July were reported to have dropped a sharp 13.4%. While the news
affected the broader markets for a short span on Friday, the housing sector
had to suffer a finish in the red owing to increasing concerns that the rising
mortgage rates could slow down the housing recovery.

The SPDR S&P Homebuilders (XHB) lost 1.4% on Friday and shares of homebuilders
such as Toll Brothers Inc. (NYSE:TOL-Free Report), KB Home (NYSE:KBH-Free
Report), Lennar Corporation (NYSE:LEN-Free Report), PulteGroup Inc.
(NYSE:PHM-Free Report) and D.R. Horton Inc. (NYSE:DHI-Free Report) sank
between 2% and 4% on the announcement.

The U.S. Census Bureau reported on Friday, Aug 23, that sales of new
single-family houses declined 13.4% to a seasonally adjusted annual rate of
394,000 in July. The July figure is much below June's rate of 455,000, which
was revised down from a previously reported 497,000. The July figure was also
much below the median estimate of economists surveyed by Bloomberg. However,
new home sales are still up 6.8% from the year-ago period.

The report also stated that the median sales price of new houses sold in July
was $257,200. Moreover, housing inventory stood at 171,000 homes at the end of
July, representing a supply of 5.2 months at the current sales rate.

In sharp contrast to weak new home sales data, sales of existing homes rose in
July according to the data published by National Association of Realtors last
week. Moreover, data published by the National Association of Home Builders
(NAHB) in mid-August showed that housing starts across the U.S. rose 5.9% in

Since mid 2012, homebuilders have largely benefited from historically low
interest rates, eventually leading to the sharp increase in home buying
activity. With the recent improvement in economic conditions and the housing
market in general, mortgage/interest rates have been edging upward to more
normalized levels since May 2013. According to the Freddie Mac mortgage
survey, the 30-year fixed mortgage rate has risen from 3.59% on May 23 to
4.58% as of Aug 23. In fact, mortgage interest rates are at the highest level
in two years. As a result we found the share prices of most housing stocks
hurtling down after having peaked in May. The better-than-expected earnings at
most homebuilders in the last quarter also failed to prevent the share slide.

This has raised concerns among some analysts. High interest rates dilute the
demand for new homes, as mortgage loans become expensive. Subsequently, this
lowers a buyer's purchasing power. Moreover, if the Federal Reserve scales
back its current $85 billion bond buyback program and instead adopts a tighter
monetary policy, as planned, interest rates may further shoot up. This in turn
would lower revenues and profits of homebuilders.

However, another group of analysts believe that interest rates are still below
historical levels despite the recent hike and housing is still very much
affordable. Home prices have also started rising with market demand gaining
momentum but supply remaining limited (both of existing and new homes). In
fact, this group of analysts believe that rising home prices and thinning home
inventories have created a sense of urgency among homebuyers to buy a house
before prices or mortgage rates shoot up further.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.

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