The housing market has been experiencing some turbulence lately, as Wedbush recently downgraded five homebuilder stocks due to seasonality headwinds in what they call the most “normal” year for housing trends since 2019. This move has sparked concern among investors and industry experts alike.
According to Wedbush analyst Jay McCanless, 2024 has been a year marked by normal seasonality in the home building industry, leading to a possible decline in stock prices as we head into the summer months. The firm downgraded Century Communities, LGI Homes, and Meritage Homes Corporation to Underperform from Neutral, citing potential challenges ahead.
Despite keeping its earnings estimates unchanged, Wedbush warns that rising land acquisition and development costs, as well as increasing lumber prices, could further impact these homebuilder stocks negatively. Additionally, higher interest rates and a lack of housing supply are causing builders to focus more on entry-level buyers, resulting in squeezed gross margins.
Looking ahead to the second quarter, McCanless anticipates a similar story playing out as mortgage rates remain near highs, with little relief in sight. While some housing economists believe rates may decline towards the end of the year, Wedbush holds a different view, pointing to the unwillingness of mortgage originators to bear prepayment risk without adequate compensation.
As the market grapples with these challenges, investors are advised to keep a close eye on the housing sector and make informed decisions. The unpredictable nature of the industry makes it imperative to stay up to date with the latest trends and forecasts to navigate these uncertain times successfully.