The homebuilding sector (XHB) is in focus as big-name stocks continue to hold firm, even as the Federal Reserve’s upcoming rate cuts raise questions about the impact on these companies. John Lovallo, homebuilding and building products equity analyst at UBS in the US, joins Market Domination to give his take.
Lovallo notes that builders have been very focused on maintaining their sales volumes, but this quarter “they showed some caution given the interest rate volatility.” “I think it’s that formula of pace versus price that builders are always trying to optimize, and I feel like they did a very good job of that this quarter,” he tells Yahoo Finance.
As high mortgage rates continue to create housing affordability problems, Lovallo points out that builders have implemented effective incentives such as lowering mortgage rates to attract homebuyers. He points out that individuals who buy a home from public builders often do not pay the nominal interest rate, but a lower one:
“These guys have a tool in their toolbox that the existing home market can’t compete with, and frankly, the smaller private builders can’t compete with either,” Lovallo says.
When discussing investment strategies, Lovallo names DR Horton (DHI) as a top pick, but remains optimistic about the homebuilding sector overall.
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This article was written by Angel Smith
