Homebuilders Under Pressure After Housing Market Index Hits 8-Month Low

Housing stocks moved to the downside on Tuesday, with the SPDR S&P Homebuilders (ETF) XHB down about 1 percent and stocks such as KB Home KBH, Toll Brothers Inc TOL, Lennar Corporation LEN and D.R. Horton, Inc. DHI also trending lower.

The housing market recovery began to take a firm hold in 2015, with house prices, housing starts and home sales all showing a remarkable recovery since then. But even amid the positive sentiment, an economic data released shortly after Tuesday's market open triggered strong reaction in housing stocks, sending them lower.

Housing Market Index At 8-Month Low

The National Association of Home Buildersreleased its monthly report on homebuilder sentiment, which showed that confidence among builders plummeted to a eight-month low.

The NAHB, Wells Fargo housing market index fell 2 points to 64 in July from a downwardly revised reading of 66 for June, which marked the lowest reading since November 2016.

Economists, on average, expected the index to increase to 68 from the 67 reported initially for June.

Supply-Side Cost Pressure

"Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber," said NAHB Chairman Granger MacDonald, a Texas home builder and developer. "This is hurting housing affordability even as consumer interest in the new-home market remains strong."

Among the sub-indexes, the current sales conditions index fell two points to 70 and the index measuring prospective buyer traffic edged down one point to 48. Meanwhile, the sales expectations index fell two points to 73.

The NAHB noted that the current sales conditions index has been at 70 or above for eight straight months, indicating strong demand for new homes. Given the latest lukewarm numbers, the association suggested that builders need to manage supply-side costs to keep home prices competitive.

The homebuilder confidence index is a leading indicator, which gives an indication as to how the housing market will fare in the near term.

Meanwhile, the Commerce Department is due to release its housing starts report for June at 8:30 a.m. ET on Wednesday. The consensus expectations call for increases in starts to a seasonally adjusted annual rate of 1.170 million units in June from 1.092 million units in May and building permits to 1.206 million units from 1.168 million units.

Stocks On The Move

• D.R. Horton was down 1.25 percent to $36.23
• KB Home shares were off 1.8 percent to $23.21
• Lennar was down 1.77 percent to $52.66
• Luxury homebuilder Toll Brothers slid 2.2 percent to $39