Citi downgrades D.R. Horton, Lennar

Shares of D.R. Horton (DHI) and Lennar (LEN) are falling after Citi downgraded the homebuilders from Buy to Neutral and slashed their price targets.

Brad Smith and Madison Mills analyze the call as the housing market continues to face pressure.

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This post was written by Melanie Riehl

Video Transcript

All right.

Another company we are looking at shares of DR, Horton and L are they're falling this morning after City downgraded the stocks from by to neutral the analyst behind that call, also slashing his price targets on the home builders, citing a more challenging housing market for buyers and softening housing activity this summer.

Now this is interesting, given what we have seen in the broader home builders space we've seen that they are offering, you know, lower mortgage rates, particular because of the challenging rate backdrop that we are seeing.

I want to pull out one specific quote from Raymond James here.

They actually say that one of the issues for L are in particular is the outsized exposure to Florida, where resale inventory is surging and increasing insurance rates and property taxes are a head wind.

So that's interesting that we're seeing such a kind of regional headwind make an impact on this downgrade Here.

I just think back to some of the data that Redfoot had recently published, talking about where buyers are really getting hit by some of the sky high housing costs.

The medium home home sale price is up 4.9% year over year.

That's an all time high.

Right now $397,250 essentially rates for mortgages.

Sure, they've come down.

They've eased a little bit off of that 7% marker, but it's still in the ballpark there.

So all of those things considered typical home buyers monthly payment sits at about $804,785 to be exact.

That's about $50 below the record high.

So with with that in mind, even though you do have more of the new home builders that are trying to capitalise on the market, where new home buyers or those who are still in the market are saying, it makes more sense for me to get into a new home that can be built out versus an existing where I would have to perhaps add on the cost of the DIY repairs or getting a contractor in to make modifications, I think that's where they're looking for any type of easing on price.

Oh, plus, the new home builders are typically able to offer some type of concession to offset what the mortgage rate environment is right now, However, uh, none of this takes from the fact that home prices are just at all time highs right now, right, and there's not a tonne that you can do about that while protecting your own balance sheet.