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BOSTON — Stocks of homebuilders slipped Thursday after a fresh batch of housing data showed disappointing August sales, and a Citi Investment Research analyst suggested homebuilder stocks may be too expensive.
The National Association of Realtors said existing home sales declined 2.7 percent in August compared with a 7.2 percent rise in July. Economists had been expecting a fifth straight increase, which would have offered further indication that the national housing market is making a sustained rebound.
Also weighing down on the homebuilding sector was Wednesday's announcement by the Federal Reserve that it would slow down its purchases of mortgage-backed securities.
Citi's Josh Levin argued in a research note Thursday that he "cannot justify owning any homebuilding stocks at current valuations."
Levin said current stock prices for homebuilders are "stretched," even though he believes the worst of the housing market slump is over.
Levin said the current housing market bottom "differs materially" from previous market lows, based on factors including vacancy rates, foreclosures, homeownership rates and price deflation.
He also said there's a shortage of land available to builders in good locations at favorable prices, which he called "an emerging issue for the homebuilders over the next year."
However, Wall Street also offered some reason for optimism for homebuilders on Thursday. Goldman Sachs analyst Joshua Pollard raised his coverage view of the sector to "Attractive" from "Neutral" citing stable home prices, low mortgage rates, and strengthening sales.
Pollard said stock prices in the sector appear to be currently low, and he expects "a greater than 50 percent chance" that an $8,000 first-time home buyer's credit currently set to expire in November will instead be extended.
Shares of Standard Pacific Corp. and Hovnanian Enterprises Inc. took the biggest hits in the group, with Standard Pacific falling 27 cents, or about 6.6 percent, to $3.81 in midday trading, and Hovnanian down 28 cents, or about 6.3 percent, to $4.19.
Elsewhere in the sector, shares of Beazer Homes USA Inc. gave up 23 cents, or about 3.8 percent, to $5.79; D.R. Horton Inc. fell 40 cents, or about 3 percent, to $12.05; KB Home declined 26 cents to $18.57; Lennar Corp. declined 63 cents, or 4 percent, to $14.88; Pulte Homes Inc. slipped 15 cents, or about 1.3 percent, to $11.74; and Toll Brothers fell 31 cents to $20.37.
