4 Homebuilder Stocks to Avoid as the Housing Market Cools Off

The proliferation of remote work, low mortgage rates, and diminished supply caused an increase in the U.S. new home sales in July 2021 by 1% following a significant decline for three straight months. Demand for homes is…

slowing in response to higher prices.

The national inventory of active listings decreased 25.8% year-over-year in August. The median national home price for active listings declined from $385,000 in July to $380,000 in August.

Given such volatility in the housing market, fundamentally weak homebuilder stocks such as Lennar Corporation (LEN – Get Rating), KB Home (KBH – Get Rating), Meritage Homes Corporation (MTH – Get Rating), and LGI Homes, Inc. (LGIH – Get Rating) could witness a deeper correction in the near term. So, these stocks are best avoided now.

Lennar Corporation (LEN – Get Rating)

LEN is engaged in the construction and sale of single-family attached and detached homes, as well as buying and selling of residential land. The company also provides mortgage financing, title insurance, commercial real estate, investment management, and other financial services and manages multifamily rental properties.

On July 29, 2021, LEN’s LMC subsidiary, engaged in apartment development and management, announced the land closing for Paxton, a luxury mixed-use community in Tysons. The high-rise community will feature 447 apartment homes and offer 14,713 square feet of retail space, with various dining, entertainment, and transit options nearby. LEN expects to witness high demand for these apartments in the future.

LEN’s total costs and expenses for the homebuilding segment increased 13.8% from the prior quarter to $4.91 billion for the fiscal second quarter ended May 31, 2021. The company’s operating earnings from the financial earnings segment came in at $121.32 million, down 17.7% from the prior-year period. LEN had cash and cash equivalents of $2.58 billion as of May 31, 2021, representing a 4.5% decline from its record value in the 2020 fourth quarter ended November 30, 2020. The stock has lost 1.6% over the past month to close yesterday’s trading session at $104.37.

LEN’s weak prospects are reflected in its POWR Ratings. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

LEN also has a C grade for Growth, Value, Momentum, Stability, and Quality. In the 25-stock, B-rated Homebuilders industry, it is ranked #7.

To see additional POWR Ratings for LEN’s Sentiment, click here.

KB Home (KBH – Get Rating)

KBH builds and sells attached and detached single-family residential homes, townhomes, and condominiums primarily for first-time, first move-up, second move-up, and active adult homebuyers in the United States. Besides that, the company also derives income from mortgage banking, title, and insurance services.

KBH announced the grand opening of…

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