Homebuilders Surge on Encouraging New Home Sales Data

Shares of the major residential builders rallied Tuesday on news that sales of new homes rose in April following a major hit the month before, defying expectations amid the coronavirus lockdown.

The stock prices of PulteGroup  (PHM) - Get Report, Lennar  (LEN) - Get Report, D.R. Horton  (DHI) - Get Report, KB Home  (KBH) - Get Report, Toll Brothers  (TOL) - Get Report and Hovnanian Enterprises  (HOV) - Get Report all posted gains ranging from 3.5% to more than 10% after the release of the U.S. Census Bureau stats on new home sales.

Sales of newly constructed homes rose to a seasonally adjusted annual rate of 623,000. While down 6.2% from the rate of sales last April, it rose 0.6% from March's rate of 619,000 and considerably higher than what the market had been expecting.

Analysts surveyed by Reuters had estimated a decline of nearly 22%.

Still, investors should be careful getting too carried away on the basis of a single-month's numbers, Action Alerts PLUS cautioned in a note to members.

"While the reading was much better than expected given the havoc the Covid-19 pandemic is wreaking on the economy ... one month does not indicate a trend and the market remains very much at the mercy of virus-related developments," Action Alerts PLUS noted.

On a day when the Dow Jones Industrial Average was up 2.5%, Hovnanian Enterprises posted the biggest increase among the major homebuilders, with shares rising 9.49% to $14.85 a share.

PulteGroup jumped 3.75% to $34.56 a share, KB Home rose 3.7% to $31.66 a share, while Toll Brothers (3.5%) and D.R. Horton (2.55%) moved higher to $30.02 a share and $55.44 a share, respectively.