According to Freddie Mac’s Primary Mortgage Market Survey last week, the average interest rate for 30-year, fixed-rate mortgages is at 4.12%. That’s the lowest it’s been all year. In fact, it’s the lowest level in nine months.
And that’s good news for three homebuilders, according to analysts from Sterne Agee.
Jay McCanless of Sterne Agee notes that it does not forecast interest rates, but says that the low interest rate environment could prove to be a boon for D.R. Horton (DHI), Beazer Homes (BZH) and MDC Holdings (MDC). McCanless has all three companies rated as “buy.”
D.R. Horton, a member of the HW 30, HousingWire’s proprietary index of 30 key housing finance-focused stocks, is in a prime position for growth, according to McCanless. “We do not believe DHI could have timed the rollout of the ultra-entry level Express Homes brand any better,” McCanless said. “A lack of available inventory in EH’s southeastern and east Texas footprint plus lower mortgage rates plus a seasonally strong time for home sales should result in incremental unit volume for DHI.”
For Beazer, McCanless cites the homebuilder’s network of preferred mortgage lenders as a potential catalyst for growth for the rest of year. “We believe (the mortgage lender network) has helped BZH maintain a relatively stable cancellation rate in the low 20%s over the last six quarters,” McCanless said. “We estimate BZH’s mix of entry-level versus move-up buyers was 60% to 40% as of the March quarter.”
Geographical positioning is MDC’s “biggest catalyst,” according to McCanless. “MDC’s six primary markets in the western U.S. had an average of 3.1 months of existing home inventory for sale as of April 2014 versus over 5.0 months for the U.S,” McCanless said. “At less than 6 months of inventory, we believe a market needs additional housing inventory to meet basic housing demand and home sellers of all stripes, new and existing, should be raising prices.”
And while private and residential construction may have stalled out in April, these three homebuilders appear prepared to buck the trend and find additional success.