© Reuters. 3 Homebuilding Stocks to Avoid as Housing Starts Slump
Due to high building costs and supply constraints, the housing market has slowed over the last month. As the demand for residential housing falters, we think it could be wise to now avoid homebuilding stocks PulteGroup (NYSE:), KB Home (NYSE:), and Meritage Homes (NYSE:). Let’s discuss.The demand for new houses and renovations rose significantly amid the pandemic, with residential construction hitting a 15-year high in March 2021. However, in July building activities took a step back, owing to the continuing supply constraints that construction companies face nationwide. Also, the housing industry has been adversely affected by surging inflation rates, which have raised housing prices substantially.
In July, housing starts declined 6% from the prior month for both single-family and multifamily projects. Supply constraints and elevated input costs are the major factors that led to the slump in the housing industry. According to senior economist George Ratiu at Realtor.com, “Builders pulled back on housing starts, wary of overcommitting on final new home prices in the face of volatile costs for land, materials and labor.”
So we think given the current volatility in the housing market, fundamentally weak stocks PulteGroup, Inc. (PHM), KB Home (KBH), and Meritage Homes Corporation (MTH) are best avoided now.