Wall Street again swooned Wednesday, though stocks did pare losses, which twice triggered trading-halting circuit breakers on the session and were trading down more that 10% at several points during the day. The Dow ended the day with losses of 6.30% at 19898.92.
Home builder stocks were again hammered, with Lennar (NYSE:LEN) closing down 11.64% to $30.90. It was trading as high as $71.38 as recently as February 21. D.R. Horton (NYSE:DHI) closed down 7.85% to $28.78. It was at $62.54 on February 18. The home building ETF (NYSE:XHB) lost 7.85% to close at $28.78. It was trading at $49.34 on February 19.
Fitch Ratings was out Wednesday with a home building sector alert stating, in part, that, “Widespread lockdowns across major markets and consumer fears around coronavirus during the critical spring selling season will negatively affect U.S. home builder profitability, particularly those with high spec inventory. The situation is very fluid and evolving and while the overall impact is hard to determine at this time, home buyer traffic, and consequently orders, are expected to be weak, at least in the short to medium term.”
The Fitch Alert continued, “Should a prolonged lockdown and economic slowdown result in meaningfully weaker housing activity, the better capitalized home builders should have the capacity to withstand the downturn, so long as they stick to their operating and financial strategies.”
Fitch listed several wild cards in its alert, among them consumer confidence, self-quarantine measures keeping buyers away from sales centers, delays in inspections and potential supply disruptions.
“Lower mortgage rates and slowing home price appreciation might provide some support for housing, particularly as affordability remains constrained. … Virtual tours may also partially mitigate the limitations of lockdowns and rising consumer fears around coronavirus,” the debt-rating agency said. “While supply of new and existing homes remains relatively tight, the surge in spec building activity by home builders in recent quarters could result in excess inventory of new homes if demand drops meaningfully in the near term. This could result in more pronounced discounting and consequently lower margins.”
