Homebuilder stocks revive after Lennar's strong Q2 results, Q3 guidance

Jun. 21, 2022 11:48 AM ETBeazer Homes USA, Inc. (BZH), DHI, TOL, PHM, KBH, ITB, LENCOMP, RDFNBy: Liz Kiesche, SA News Editor6 Comments

Homebuilder stocks are rising in Tuesday trading after Lennar (NYSE:LEN) posted better-than-expected Q2 earnings and issued Q3 guidance showing that its homebuilding margins are holding up even as mortgage rates continue to rise.

In addition, the company said it sees signs of supply chain issues starting to ease. "Our cycle time during the quarter increased only slightly sequentially so it appears that the well documented supply chain issues have started to subside," said Lennar co-CEO and co-President Jon Jaffe.

KB Home (NYSE:KBH) is scheduled to release its Q2 earnings Wednesday after the close. So investors will get more insights into how well the sector is faring with the Fed's tightening cycle.

iShares U.S. Home Construction ETF (BATS:ITB) is up 1.6% in late morning trading, its strongest gain since June 2. Like the broader stock market, the ITB has been mostly falling during the month of June, down 9 out of the past 13 sessions.

By name, Lennar (LEN) is gaining 3.1%, PulteGroup (NYSE:PHM) +2.8%, Toll Brothers (NYSE:TOL) +2.3%, D.R. Horton (NYSE:DHI) +1.9%, Beazer Homes USA (NYSE:BZH) +3.0%, and KB Home (KBH) +1.7%.

Homebuilder stocks are especially vulnerable as the Federal Reserve raises interest rates to combat rising inflation. As the federal funds rate rises, so do mortgage rates. See below the the rising 30-year fixed rate mortgage average since late 2020.

Notice that as the mortgage rate rises, stock, generally, and ITB has been falling.

Last week, many homebuilder stocks were in the red after real estate brokers Redfin (RDFN) and Compass (COMP) announced layoffs. Also see: White-hot housing demand cools to red-hot as mortgage rates, inflation rise

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