Home builder stocks are on a tear, boosted by a jump in demand as some Americans shun the historically tight and unaffordable market for existing housing.
The Federal Reserve's bid to bring down inflation by raising interest rates has sent US mortgage rates soaring over the past year. That, coupled with a tight supply of houses on the market, driven by owners' reluctance to let go of the ultra-low mortgage rates they locked in during the height of the pandemic, means homes haven't been this unaffordable since 1984.
US mortgage rates dipped this week, snapping a five-week streak of gains. But the 30-year fixed-rate mortgage remains elevated, averaging 7.18% in the week ending August 31, up from 5.66% in the year-earlier period.
Fed up with fierce competition for the smattering of houses available in their targeted neighborhoods, or looking to avoid bidding wars altogether, some Americans have opted for new construction instead.
That's been a boon to home builder stocks. Compared to the benchmark S&P 500 index's gain of about 17% this year, Pultegroup shares have jumped roughly 80%, Toll Brothers added 64%, DR Horton rose about 34% and Lennar climbed 32%.
Bank of America analysts said in a recent report that they expect home builders to ramp up their pace of housing starts during the second half of this year.
A securities filing earlier this month revealed that Warren Buffett-led Berkshire Hathaway has made a big bet on Lennar, DR Horton and NVR. That helped lift some home builder stocks, though many still slipped in August along with the broader market.
Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services, says she expects the run in home builder stocks to continue as mortgage rates stay high and supply stays low. "Especially if you're a first time buyer, this is an impossible market," she said.
Furniture stocks have also rallied this year, indicating that Americans who can't or don't want to move are sprucing up their homes instead, says Rathbun. Wayfair shares have soared roughly 110%, RH rose 37%, La-Z-Boy added 35% and Ethan Allen gained 21%.
Labor Day weekend gas prices are near all-time highs
Drivers hitting the road this Labor Day weekend will be greeted by historically high gas prices for this time of the year.
The record high for gas prices during the week leading up to Labor Day was set in 2012 at $3.84 a gallon, according to a CNN review of federal data that goes back to 1990.
Current prices are just shy of that. The national average for regular gas is $3.82 a gallon as of Friday, according to AAA.
Normally, prices at the pump cool off as the summer winds down. Not this year.
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China is still suffering from declining factory output
Factory activity in China contracted for a fifth straight month in August, adding pressure on Beijing to roll out more stimulus measures to bolster the faltering economy.
The official Purchasing Managers' Index (PMI) — which surveys larger companies and state-owned enterprises — stood at 49.7 in August, up from July's 49.3, according to data released by the government's National Bureau of Statistics (NBS) on Thursday. A reading above 50 indicates expansion, while anything below that level shows contraction.
It was the third straight month that the index had improved from the previous month, and it was better than economists were expecting. (And a private survey published Friday suggests smaller manufacturers may be faring better.)
However, China's vast manufacturing industry has now been contracting since April, according to the data, and there was more evidence Thursday that other areas of the economy are weakening.
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