* Mortgage rates have been rising since May
* Shortage of land and labor is raising supply concerns
* Rising interest rates just a speed bump in recovery -
* StarMine model shows room for shares to rise
By Sagarika Jaisinghani
July 16 An odd thing happened after data
released Tuesday showed that the U.S. homebuilder confidence
index rose to its highest level in almost eight years - housing
stocks barely moved on the news.
Wary of rising mortgage rates, investors are choosing to
stay on the sidelines rather than celebrate indications of a
firming U.S. economic recovery.
Homebuilder confidence rose in July to its strongest level
in 7-1/2-years as tightening supply and solid demand fueled the
sector's recovery, data from the National Association of Home
Builders released on Tuesday showed.
The index almost exclusively covers private builders but
shares of publicly listed builders generally tend to move.
Shares of the largest U.S. homebuilder D.R. Horton Inc
, No. 3 Lennar Corp and Toll Brothers Inc
, the market leader in luxury homes, were all flat in
afternoon trading on the New York Stock Exchange. Shares of No.
2 builder PulteGroup Inc fell 1 percent.
The wider S&P 500 index was down marginally on
"Right now we're just in a very volatile period where
interest rate concerns really are outweighing the other demand
side of the equation," Williams Financial Group analyst David
Mortgage rates have been rising since May and touched their
highest level in two years in the first week of July, hurting
The Dow Jones Home Construction index has tripled
since October 2011, when news of a recovery in housing demand
started trickling in.
But it declined about 10 percent over the last few weeks
after U.S. Federal Reserve Chairman Ben Bernanke suggested the
central bank could ease spending if the economy continued to
Investors' reaction also suggests that many are now looking
beyond housing demand and studying supply concerns that are
being caused by stricter lending rules and shortage of labor.
D.R. Horton's stock recorded its largest percentage jump in
5-1/2-months on July 11 after unemployment data suggested a
healing in the labor market.
While investors are playing a wait-and-watch game, analysts'
projections indicate that the rising interest rates are just a
hiccup in the recovery.
"Severely constrained existing home inventory, historically
low mortgage rates, and improving buyer confidence are creating
positive momentum for rising home prices this year," Raymond
James analyst Buck Horne wrote in a client note on Tuesday.
D.R. Horton is trading at about $21, below its intrinsic
value of $27.93 as measured by Thomson Reuters StarMine. The
model is a measure of how much a stock should be worth currently
when considering expected growth rates over the next 15 years.
PulteGroup trades at about $19 versus an intrinsic value of
$26.60. Lennar is at $35.42 compared with $37.01.