Homebuilders' post-election bump may be short-lived

Dive Brief:

Stocks of the largest publicly traded homebuilders in the U.S. rose after the November election amid strong demand and growing optimism in the sector that federal regulations could become less-stringent under the Trump administration, according to the Baltimore Business Journal, citing a recent analysis by the American City Business Journal.
The report found that the sector’s market value grew by about $6 billion between the Nov. 9, 2016, election and Jan. 18, 2017, with nearly half of the nation’s 24 largest homebuilders posting double-digit stock gains.
However, the run-up occurred immediately following the election, and values for the five biggest builders are now on the downswing after spiking early last month, driven in part by concerns over the impact of rising mortgage rates, TheStreet reported.

Dive Insight:

Although questions remain as to the long-term impact of the new administration and a Republican-led Congress, the residential construction sector appears to have received a temporary shot in the arm as demand levels hold firm and homebuilders continue to be hopeful that the new administration will reduce regulations in a bid to spur building activity.

The latest Commerce Department figures show that housing starts jumped 11.3% in December to a seasonally adjusted annual rate of 1.226 million, compared to November's revised estimate of 1.102 million. Meanwhile, home values are continuing to rise, with Zillow’s Home Value Index showing a 6.8% increase in December on the year-ago period to a median value of $193,800.

Despite the momentum, concerns are growing that the recent rise in mortgage rates and forecasts of further increases could hamper growth in the sector this year.

One contributing factor is the Federal Reserve Board’s recent move to raise interest rates by 25 basis points to a range of 0.50% to 0.75%.

A suggestion that the post-election bump could be waning in the wake of mortgage rate hikes was underlined earlier this month when Fannie Mae reported that its consumer sentiment index for housing fell for the fifth-straight month, dropping 0.5 points to 80.7 points in December.

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