Homebuilders slide after March sales miss, D.R. Horton downgrade

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Homebuilder stocks are slipping after sales of previously owned homes fell more than forecast in March and KBW cut its rating on D.R. Horton shares.

Home sales declined for a fourth time in five months, even with lower mortgage rates, wage gains and slower home-price appreciation. The S&P Supercomposite Homebuilding Index fell as much as 1.6% Monday, its biggest intraday decline since March 28, led by William Lyon Homes, M/I Homes Inc. and Cavco Industries Inc.

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“Existing-home sales cooled in March after an explosive rebound in February,” Amherst Pierpont Securities chief economist Stephen Stanley wrote in a note. He added that “March might be the closest approximation we have seen in a while to the true underlying sales pace,” after February’s bounce back from two months that were affected by higher mortgage rates, weather disruptions, and interruptions that may have been caused by the federal government’s partial shutdown.

D.R. Horton, which is due to report quarterly earnings on Thursday, dropped as much as 2.6%. KBW analyst Jade Rahmani cut the stock to market perform after a year-to-date rally propelled its valuation close to the firm’s price target of $47 a share.

He also sees “a choppy spring selling season,” with varied performance in different regions and buyer segment, along with impact from severe weather, even though demand may have improved from year-end amid lower mortgage rates. Rahmani was concerned operating margins may underperform investor expectations in the second half of the year, driven by a mix shift toward lower-margin entry-level product, higher incentives, higher construction costs and tough competition.

Among outperformers today, NVR Inc. rose as much as 3.5% to the highest since June after reporting better-than-expected results. PulteGroup Inc., set to release its earnings Tuesday before the bell, advanced almost 1%.

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