The National Association of Home Builders/Wells Fargo Housing Market Index fell three points in September to 46, a bearish reflection of current U.S. homebuilder sentiment. While some investors see the weak housing market as an investment opportunity, Bank of America analyst Curtis Nagle said Monday that it’s still too early to be buying the dip in leading iBuying stocks.
The Analyst: Nagle reiterated Underperform ratings on Zillow Group Inc ZG, Redfin Corp RDFN and Opendoor Technologies Inc OPEN. He has a $5.25 price target for Opendoor, a $7 target for Redfin and a $31 target for Zillow.
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The Thesis: The Housing Market Index fell further into negative territory in September. Any reading below 50 is considered negative for the housing market. Nearly 25% of all builders reported price cuts in September as mortgage rates soared. Price cuts are even more telling given homebuilders are currently dealing with rising costs of land, labor and materials.
On Monday, Zillow reported U.S. housing prices dropped 0.3% in August, the largest monthly decline since 2011. At the same time, Zillow reported new listings are currently averaging 16 days before they go pending, up from just 10 days one year ago. New listings were down 8.5% year-over-year in June, but that decline worsened to 23% in August, Zillow said.
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After attending the Bank of America Global Real Estate Conference, Nagle said “industry fundamentals are going to turn worse before they get better,” and cautioned investors that iBuyers will likely continue to have significant headwinds for the foreseeable future.
“We see additional downside risk to sales/earnings, in part due to mortgage rates reaching 6.02% for the week ending on 09/15, the highest since 2008,” Nagle said.
Nagle said surging home prices over the past…
