Homebuilders captured Wall Street’s eye Thursday as builder confidence reached its highest level in eight years, breathing life into the sector’s stocks.
However, all other mortgage industry companies on the HW 30 tumbled as jobs data and gains in consumer prices created uncertainty about whether the Federal Reserve will begin trimming its quantitative-easing bond-buying program.
The number of Americans filing new claims for jobless benefits fell to a near six-year low, while consumer prices rose.
The consumer price index decelerated to a 0.2% rise in July, after growing 0.5% in June.
Meanwhile, consumer sentiment faltered this week after reaching record highs a week earlier. However, the Bloomberg Consumer Comfort Index posted its second-highest reading since late January 2008.
While jobless claims fell to 15,000 in August – a new recovery low of 320,000 – the claims may not be enough for the central bank to meet market expectations that tapering will begin in September.
The bright spot in economic data came from the National Association of Home Builders/Wells Fargo Housing Market Index, which rose another 3 points to 59 for its highest reading since 2005. A score over 50 is generally considered a positive for the homebuilding market.
As a result, homebuilder stocks soared throughout the day, with Lennar Corp. (LEN) experiencing more than a 1% surge.
D.R. Horton, Inc. (DHI) and Toll Brothers, Inc. (TOL) also witnessed stock hikes throughout the day, despite ongoing market worries over Fed tapering and rising mortgage rates.
"I believe homebuilders are up on the confidence level, which hit a multiyear high," said Robert Grimm of Odeon Capital Group.
He added, "Demand for new homes has remained high, but that is not a surprise to me. I told people when interest rates start rising, you usually see a rush to buy houses."
Nonetheless, rising interest rates are putting pressure on homebuilder stocks.
For instance, while Lennar is leading the homebuilder stock sector, it's down nearly 25% over the past three months.
Interestingly enough, consumer confidence sent home improvement retailers such as Lowes Cos. (LOW) and Home Depot, Inc. (HD) spiraling down, with their stocks dropping 1% and 2%, respectively.
Overall, Grimm believes the recent rise in interest rates means the market will usually sees a rush to buy homes.
"What it usually means though is that sales that would have taken place in the near future are occurring now and if history repeats itself, sales will slow in the coming quarters so I would not be a buyer of homebuilder stocks in here, but the opposite, take advantage of the run up in prices and sell," Grimm explained.
He concluded, "Just my opinion, but we have seen this before, just not lately as rates have been in a downward trend for a long time."
