Homebuilders Are Starting To Feel The Crunch [Toll Brothers Inc, Hovnanian Enterprises, Inc., Beazer Homes USA, Inc.]

The plunge in homebuilder sentiment comes a few days after it was announced that applications for U.S. home mortgages fell two percent during the first week of February, as both purchases and refinancing fell. (Source: “Mortgage applications fall in latest week: MBA,” Reuters, February 12, 2014.)

While many are blaming the atrocious homebuilding sentiment number and decline in mortgage applications on the weather, I think the negative housing market sentiment is a reflection of the weak U.S. economy and jobs market. If the main culprit is the weather, a warm, sunny spring basically means all will be right and well with the U.S. economy: housing sales will increase, jobs will become plentiful, wages will rebound, and car sales will rise.

I think homebuilders and homebuyers can look beyond short-term weather issues. Even if I was stuck in a blizzard, my housing market sentiment would remain bullish if I knew the economy was strong and consumers would flood the markets when the snow stopped.

But the fact remains, the economy is weak. This means the housing market is on the backburner for many potential homebuyers and homebuilders are either left sitting with empty homes for sale or idling equipment. Homebuilders are feeling what we’ve been predicting for months here at Daily Gains Letter.

Investors who think the U.S. housing market will pick up over the coming months might want to research residential construction companies, such as Toll Brothers, Inc. (NYSE:TOL), Hovnanian Enterprises, Inc. (NYSE:HOV), or Beazer Homes USA, Inc. (NYSE:BZH). If you’re bearish, you might want to consider shorting those stocks that rely on the U.S. housing market.

This article is brought to you courtesy of John Whitefoot from the Daily Gains Letter.

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