Homebuilder Shares Ease After Decline in Housing Starts

Housing starts eased to a seasonally adjusted annual rate of 1.42 million in August from July. Homebuilder shares are a bit lower.
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U.S. homebuilder shares eased on Thursday after the government reported that housing starts, building permits and housing completions fell in August from July.

The iShares U.S. Home Construction ETF  (ITB) - Get Report slid 1.6% to $55.65. The ETF had jumped 27% year to date through Wednesday.

Among prominent homebuilders, D.R. Horton  (DHI) - Get Report shares traded at $73.34, down 1.4%; and NVR  (NVR) - Get Report traded at $4,159, down 1.4%; and Toll Brothers  (TOL) - Get Report slipped 0.9% to $44.59. 

PulteGroup  (PHM) - Get Report gave back 0.8% to $46.36 and KB Home  (KBH) - Get Report fell 2.3% to $38.07.  Lennar  (LEN) - Get Report traded little changed at $78.95. 

Privately owned housing starts registered a seasonally adjusted annual rate of 1,416,000 in August, down 5.1% from the revised July estimate of 1,492,000. 

At the same time, the August number is 2.8% above the August 2019 rate of 1,377,000.

Meanwhile, privately owned housing units authorized by building permits posted a seasonally adjusted annual rate of 1,470,000 in August, down 0.9% from the revised July rate of 1,483,000. 

The August figure edged down 0.1% from the August 2019 rate of 1,471,000.

In addition, privately owned housing completions recorded a seasonally adjusted annual rate of 1,233,000 in August, down 7.5% from the revised July estimate of 1,333,000. 

The August figure is 2.4% below the August 2019 rate of 1,263,000.

Morningstar analyst Brian Bernard offered praise for D.R. Horton after its July earnings report. 

“D.R. Horton delivered an excellent fiscal-third-quarter performance, which we view as more proof that housing market fundamentals in the U.S. have remained strong despite the coronavirus pandemic,” he wrote in a commentary.

“[The] combination of D.R. Horton's scale and its position in the entry-level market will allow the firm to continue to gain market share.”

Still, Bernard thinks the stock is overvalued, putting fair value at $59.