Homebuilders in the U.S. are less vulnerable to increases in mortgage rates than their falling share prices would suggest, according to David Goldberg, an analyst at UBS AG.
As the CHART OF THE DAY shows, a Standard & Poor’s index of builders has lost 18 percent since May 14, when the gauge closed at its highest level since June 2007. The average 30-year fixed mortgage rate rose 0.51 percentage point during the period to 3.93 percent, according to data compiled by Freddie Mac.
Higher bond yields have laid the groundwork for further increases. The yield on the 10-year Treasury note, a benchmark for rates on many home loans, rose 0.28 point in the past four days to 2.41 percent.
Yet it’s premature to expect the housing market to falter, Goldberg wrote yesterday in a report. Many prime locations have a dearth of homes for sale, he wrote, and higher financing costs probably won’t deter buyers much until next year’s second half.
“We don’t view today’s buyer as constrained,” the New York-based analyst wrote. Purchasers tend to have higher income and better credit ratings than in past years, he wrote, which makes them less sensitive to mortgage rates and prices than entry-level buyers.
Goldberg cited Beazer Homes USA Inc. (BZH) and PulteGroup Inc. (PHM) as favorites among the 10 homebuilders he covers. Beazer, based in Atlanta, is the group’s only buy-rated stock. PulteGroup, based in Bloomfield Hills, Michigan, has a neutral rating.
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