Tuesday's Market Minute: KBH Earnings Will Give More Clarity On Housing Picture

On Monday, U.S. homebuilder sentiment fell to a five-month low in September. Yet earnings of recent homebuilders like Lennar LEN show a continued strong demand, even as 30-year fixed mortgage interest rates remain above 7%.

 But if sentiment among homebuilders is indeed heading downward, some cracks could be starting to appear when we look into the details of earnings reports and activities of some homebuilders.

 In the National Association of Home Builders’ (NAHB) recent homebuilder sentiment report, economists note how builder sentiment had been rising as resale inventory remains limited and demand rises for new homes. But they said higher borrowing costs could be taking a toll on builder confidence and demand.

And the knock-on effect could be coming through the recent actions of homebuilders. Not only did promotional activity to lure prospective buyers increase to a four-month high, NAHB data showed almost a third of homebuilders who responded to the survey said they cut prices to bring in more sales, which is a squeeze on margins.

Lennar’s earnings report, while posting better-than-expected figures, confirmed this, showing the average price per home declined year-over-year. This could be a sign of more pressure to come. And we’ll see if there’s a pattern when KB Home KBH reports earnings on Wednesday.

But for now, supply is tight enough and interest rates are manageable enough to prop up demand, at least for the near term.

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