July 21, 2020 / 5:40 PM / 24 days ago

PREVIEW-Low Fed rates, flight to the suburbs set to boost U.S. homebuilders

    By Ankit Ajmera
    July 20 (Reuters) - U.S. homebuilders are expected to report
a sharp rebound in sales and orders for the second quarter as
record-low mortgage rates and the working-from-home changes
brought on by the coronavirus encourage more Americans to move
to less crowded suburbs.
    A quarter ago most homebuilders were pulling their annual
forecasts and bracing for a huge fall in orders due to mounting
cancellations in the face of historic U.S. job losses that left
buyers worried about their financial future.
    Builders have been among the fastest recovering sectors from
the initial round of lockdowns, however, with U.S. housing
starts up 17% in June as rock bottom interest rates got sales
moving again.
    A nationwide Harris poll also showed almost 40% of urban
dwellers would now consider moving to less populated areas, and
percentages browsing online for properties are even higher.
    "Record-low rates and a powerful 'nesting' trend are driving
strong order growth and pricing by the builders, this is now
largely embedded in expectations," Evercore ISI analyst Stephen
Kim said.
    Refinitiv's consensus of analysts' estimates shows revenue
for PulteGroup Inc, which kicks off the sector's
earnings on Thursday, will rise by 9.5% from the preceding
quarter. Its bigger rival, D.R. Horton is expected to
see growth of 14%.
    But luxury builder Toll Brothers Inc is projected to
see only a marginal sales increase of 0.5%.
    Barclays analyst Matthew Bouley last week raised earnings
estimates and price targets for both Horton and Pulte, citing
their exposure to affordable entry level homes, which are seeing
strong demand from buyers.
    Demand has also been supported by the 30-year fixed mortgage
rate hovering around 2.98%, the lowest since 1971, according to
data from mortgage finance agency Freddie Mac.
    But with a staggering 32 million Americans unemployed,
lumber prices at a two-year high, and rising coronavirus
infections threatening to guarantee a long, deep recession,
investors will also be looking for clarity on how long the
current sales uptick can continue.
    "Millennials (are) moving to the suburbs and people are
looking for a better way to have a home office ... We're going
to have to see how sustainable they are," Lennar Executive
Chairman Stuart Miller said last month.
    Shares of homebuilders have risen quarter-to-date, fuelling
a nearly 70% rise in the Dow Jones U.S. Homes Index.
The S&P 500 has risen about 26% in the same period.
             DATE        REVENUE*         QTRLY         QTRLY
                                          DELIVERIES*   ORDERS*
 PULTEGROUP  Thursday,   $2.51 bln, up    6,031 units,  5,633
 INC         July 23     ~1% y-o-y        up ~8% y-o-y  units,
                                                        down ~17%
 D.R.        Tuesday,    $5.13 bln, up    17,068        14,961
 HORTON      July 28     ~4.5% y-o-y      units, up     units,
                                          ~7% y-o-y     down ~4%
 TOLL        Sometime    $1.52 bln, down  1,861, down   1,942,
 BROTHERS    in August   ~14% y-o-y       ~7% y-o-y     down ~13%
 * Refinitiv data

 (Reporting by Ankit Ajmera in Bengaluru; Writing by Sweta
Singh; Editing by Saumyadeb Chakrabarty)
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