By Kate Gibson
With one U.S. stock market gauge of the housing sector up more than 20% so far this year, a fair amount of optimism has seeped into builder stocks. On Tuesday, that cheery outlook took a hit as housing starts came in flat for September, deflating builder stocks along with consumer discretionary shares.
"The housing market still faces a tremendous series of headwinds over the coming months and it would be quite foolish to assume the market itself is all healed," said Dan Greenhaus, chief economic strategist at Miller Tabak & Co.
After running up to a 2009 high in mid-September, the Philadelphia Housing Sector Index (HGX) on Tuesday fell 1.2% to 103.73, still up nearly 21% in the year to date.
The index declined along with the major U.S. stock indexes and a collection of homebuilders and related shares after the Commerce Department found new-home construction to be essentially flat in September. .
On the Dow Jones Industrial Average, Home Depot Inc. (HD) was among those hit, with shares of the home improvement retailer falling 2.4%.
Away from the Dow, Pulte Homes Inc. (PHM) shed 5% of its market valuation, while Lennar Corp. (LEN) shares fell 2.9% and DR Horton Inc. (DHI) declined 1.3%. Shares of residential builder Toll Brothers Inc. (TOL) lapsed 1% and Hovnanian Enterprise Inc. (HOV) dropped 4.6%.
Tuesday's housing report came a day after a trade group reported a shift toward pessimism in October among U.S. home builders. .
Builders block?
"While estimates are looking for third-quarter order volume to improve significantly from the second quarter, when orders were down about 20%, the builders should be quite hesitant with respect to extrapolating out recent improvements into out quarters," Greenhaus said.
"Going forward, one has to believe that order trends will dictate whether further price appreciation will be realized," said Greenhaus.
"The latest reading on the home builder's index is a fine example of how the market is writing checks the economy can't cash. The equity bulls have already discounted a solid housing recovery into valuations and yet home builders' confidence appears to have topped out at an exceptionally low level and perspective buyer traffic dropped reversing three months of gains," said Steven Ricchiuto, chief economic, Mizuho Securities USA Inc.
On Wall Street, the Dow Jones Industrial Average (DJI) fell 50.71 points, or 0.5%, to end at 10,041.48, while the S&P 500 Index (SPX) declined 6.85 points, or 0.6%, to 1,091.06, and the Nasdaq Composite Index (RIXF) lost 12.85 points, or 0.6%, to 2,163.47.