Analysts are expressing growing concerns about the housing market in key regions such as Florida and Texas, leading to downgrades for homebuilders Lennar Corp. and D.R. Horton Inc. Citing a potential sluggish second half of the year, Citigroup Inc. analyst Anthony Pettinari downgraded both stocks. Raymond James Financial Inc.’s Buck Horne also joined in, lowering his recommendation on Lennar to market perform due to the company’s significant exposure in Florida.
Pettinari highlighted a variety of data points indicating a weakening housing market, including permits, starts, sales, and prices falling below expectations. He expressed worries that these trends could persist in the coming months, with inventories of both new and existing homes on the rise. In particular, he pointed to concerns in Texas and Florida, traditionally seen as powerhouse markets.
Stocks of Lennar and D.R. Horton dropped following the downgrades, reflecting investor unease. While homebuilder shares saw significant growth in 2023, the first half of 2024 has been less impressive, with the S&P Composite 1500 Homebuilding Index remaining relatively flat. Pettinari explained that despite long-term positives for both builders, the deteriorating housing fundamentals are cause for concern.
Horne echoed these sentiments, emphasizing the challenges faced by Lennar in Florida, where resales are surging and warranting caution. While Lennar management mentioned continued strength in most Florida markets during their last earnings call, the outlook remains uncertain. The pair of downgrades have brought the consensus recommendations on Lennar shares to their lowest level in years.
Looking ahead, analysts are cautiously optimistic about the broader homebuilding sector but are alert to the need for a potential re-rating. With Florida and Texas showing signs of softening, the industry faces a period of uncertainty and adjustment as it navigates the changing landscape of the housing market.