The Ratings Game: Raymond James ‘tapping out’ of home-builder stocks as a housing recession is now a given

by | Oct 21, 2022 | Stock Market

Raymond James analyst Buck Horne lowered ratings on all of the home-builder stocks he covers, as he believes the recent “relentless” climb in mortgage rates has ensured a housing recession. “Interest rate volatility isn’t just slowing the for-sale market,” Horne wrote in a note to clients. “We are seeing a broad spectrum reduction in housing demand, including multifamily and SFR [single-family residence]. Net new household formations seem to have come to a standstill.”

Horne double downgraded PulteGroup Inc.
PHM,
+2.46%,
KB Home
KBH,
+3.25%
and M.D.C. Holdings Inc.
MDC,
+2.33%,
moving his ratings down two notches to market perform from strong buy, and cut his ratings on Lennar Corp.
LEN,
+2.87%
and Toll Brothers Inc.
TOL,
+3.67%
by one notch to market perform from outperform. He remains bullish on D.R. Horton Inc.
DHI,
+3.89%,
but less than before, as he downgraded the stock to outperform from strong buy. “Begrudgingly, we are tapping out on the homebuilders after a relentless [2 percentage point] increase in 30-year mortgage rates over the past 2.5 months,” Horne wrote. “Unsurprisingly, numerous anecdotes and indicators…corroborate that the recent parabolic spike in rates has cratered what residual housing demand was still in the market this summer.” Don’t miss: Mortgage rates surge to the highest level since April 2002. ‘The next several months will undoubtedly be important for the economy and the housing market.’ Also read: U.S. housing starts retreat in September, dragging down U.S. growth. The iShares U.S. Home Construction exchange-traded fund
ITB,
+3.07%
has dropped 12.9% over the past three …

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