### Summary
Housebuilder shares, including Crest Nicholson, have tumbled after a profit warning, signaling a downturn in the housing market and raising concerns about higher mortgage and interest rates.
### Facts
- Housebuilder Crest Nicholson issued a profit warning, resulting in a sell-off across the sector.
- The housing market downturn is negatively impacting the domestically-focused FTSE 250 index, which is down more than 4% this year.
- The UK homebuilders index fell 2.9% in early trading after Crest Nicholson's profit warning.
- Shares of Taylor Wimpey, Barratt Developments, and Persimmon also dropped due to the profit warning.
- Crest Nicholson's share price is down 14.4%, on track for its biggest daily drop since June 2020.
- The housing market has slowed considerably this summer, impacting Crest Nicholson's profit forecast.
- Worsening trading conditions, high inflation, and rising interest rates have contributed to the decline in the housing market.
- Crest Nicholson attributed the slowdown to mortgage costs, lack of government support, and economic uncertainty deterring potential buyers.
- The company does not anticipate an improvement in trading conditions before its year-end.
- European markets are relatively muted, with slight gains across the FTSE 100, German DAX, French CAC 40, Spanish IBEX, and European STOXX 600.
- UK home sellers have slashed asking prices by an average of 1.9% in August, the fastest decline since summer 2018, in response to high interest rates impacting mortgage costs.
- China has cut one of its key lending rates to stimulate its weakening economy, but concerns over the currency have prompted caution.
High mortgage rates and tight inventory are slowing home sales in the D.C. region, leading to predictions of a slowdown in the housing market and the possibility of a market freeze if inflation and interest rates increase.
Institutional firms in the housing market have significantly reduced their home purchases due to spiked interest rates and a lack of available homes for sale, but there are signs of another surge on the horizon with the securing of capital by companies like MetLife Single Family Rental Fund and plans for joint ventures in rental home development by J.P. Morgan Asset Management and American Homes 4 Rent.
Mortgage rates topping 7% have led to a significant drop in mortgage applications for home purchases, with last week seeing the smallest volume in 28 years. The increase in rates, driven by concerns of high inflation, has priced out many potential buyers and contributed to low housing supply and high home prices. As a result, sales of previously owned homes have declined, and homeowners are reluctant to sell their properties due to the higher rates. Some buyers are turning to adjustable-rate mortgages to manage the increased costs.
The slowdown in China's property market continues despite government measures to revive the economy, with analysts warning that the sentiment among many Chinese is too weak for these moves to be effective.
The housing market is entering its slow season and home sales may be impacted by high mortgage rates, but home builder stocks could remain strong.
The D.C.-area housing market is experiencing high interest rates, historically low inventory levels, and multiple offers, leading to a "dysfunctional" market for buyers and sellers.
The Greater Boston housing market experienced a slow month in August, with home sales dropping to their lowest point for the month since 2010, primarily due to higher interest rates and a shortage of available homes for sale, leading to increased competition and higher prices for buyers.
In this article, the stock mentioned is KB Home (NYSE:KBH). The author's recommendation is to buy and hold the stock.
The author's core argument is that KB Home is well-positioned in the housing market, particularly because it serves first-time and second-time homebuyers, who represent a growing pool of potential buyers. The author also points out that KB Home has a strong balance sheet, generates significant cash flow, and has been reducing its debt and repurchasing shares.
Key information and data provided in the article include:
- KB Home's fiscal Q3 earnings, where it earned $1.80 on revenue of $1.59 billion, surpassing expectations by $0.38.
- The decline in KB Home's earnings and margins due to a 14% decrease in revenues and declining average sales prices.
- The decline in deliveries and sales prices, as well as the decline in homebuilding gross margins.
- The increase in net new orders and the stabilization of the backlog, indicating steady demand.
- The improvement in KB Home's balance sheet, reduction of debt, and focus on share repurchases.
- The favorable macro environment for KB Home, with the rise in millennials becoming homebuyers, supply constraints, and a significant housing shortage.
- The expectation of strong profits for the next few years and potential for double-digit returns.
- The current valuation of KB Home's shares and the potential upside.
Note: The article is an opinion piece by the author and not financial advice.
The United States housing market has seen a 21 percent decline in previously occupied home sales over the past year, continuing the slowdown caused by rising interest rates, while prices continue to rise despite the decrease in sales, leading to a shortage of affordable homes and worsening home affordability for the foreseeable future.
Despite rising interest rates and high home prices, some homebuyers are still entering the housing market by making compromises, such as taking adjustable-rate mortgages or moving to lower-cost areas.
As the US housing market starts to cool down, homebuyers are being presented with a good opportunity as more homes see price reductions, according to Zillow, with 9.2% of listings having a price cut in the week ending September 16, a higher rate than in 2019.
The housing market is slowing down due to soaring mortgage rates, which could lead to an economic downturn as home construction is curbed and growth prospects falter, according to billionaire investor Bill Gross.
