Home builder stocks shine as prospective buyers turn to new construction

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By Krystal Hur • Friday, September 1

Good morning. In today's newsletter: Some Americans are giving up trying to buy existing housing and are turning to new construction instead, giving home builder stocks a boost. Plus, Labor Day weekend gas prices are near all-time highs.

US stock futures are moving higher ahead of Friday's jobs report. Markets in Europe are also making gains, while Asia ended mixed despite a new wave of policy measures aimed at boosting China's economy.

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What's happening now in markets:

▲ Dow Futures 34,917.00 (+0.36%)

▲ S&P 500 Futures 4,532.00 (+0.36%)

▲ NASDAQ Futures 15,569.00 (+0.20%)

▲ 10 Year 4.108%

▲ Gold $1,971.70 (0.00%)

▲ WTI Crude Oil $84.72 (+0.01%)

▲ Bitcoin $25,981.00 (+0.13%)

Fear & Greed Index

Neutral sentiment is driving the US market

MARKET DATA AS OF 7:14 AM ET

MARKET FLASH

Home builder stocks shine as prospective homebuyers turn to new construction

Home builder stocks are on a tear, boosted by a jump in demand as some Americans shun the historically tight and unaffordable market for existing housing.

The Federal Reserve's bid to bring down inflation by raising interest rates has sent US mortgage rates soaring over the past year. That, coupled with a tight supply of houses on the market, driven by owners' reluctance to let go of the ultra-low mortgage rates they locked in during the height of the pandemic, means homes haven't been this unaffordable since 1984.

US mortgage rates dipped this week, snapping a five-week streak of gains. But the 30-year fixed-rate mortgage remains elevated, averaging 7.18% in the week ending August 31, up from 5.66% in the year-earlier period.

Fed up with fierce competition for the smattering of houses available in their targeted neighborhoods, or looking to avoid bidding wars altogether, some Americans have opted for new construction instead.

That's been a boon to home builder stocks. Compared to the benchmark S&P 500 index's gain of about 17% this year, Pultegroup shares have jumped roughly 80%, Toll Brothers added 64%, DR Horton rose about 34% and Lennar climbed 32%.

Bank of America analysts said in a recent report that they expect home builders to ramp up their pace of housing starts during the second half of this year.

A securities filing earlier this month revealed that Warren Buffett-led Berkshire Hathaway has made a big bet on Lennar, DR Horton and NVR. That helped lift some home builder stocks, though many still slipped in August along with the broader market.

Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services, says she expects the run in home builder stocks to continue as mortgage rates stay high and supply stays low. "Especially if you're a first time buyer, this is an impossible market," she said.

Furniture stocks have also rallied this year, indicating that Americans who can't or don't want to move are sprucing up their homes instead, says Rathbun. Wayfair shares have soared roughly 110%, RH rose 37%, La-Z-Boy added 35% and Ethan Allen gained 21%.

VOICES

Union alleges GM, Stellantis not bargaining in good faith

"We are now 14 days out from our contract expiration and both General Motors and Stellantis have failed to give us any economic counters."

SHAWN FAIN, UNITED AUTO WORKERS UNION PRESIDENT

Read more from CNN Business

ECONOMY FLASH

Labor Day weekend gas prices are near all-time highs

Drivers hitting the road this Labor Day weekend will be greeted by historically high gas prices for this time of the year.

The record high for gas prices during the week leading up to Labor Day was set in 2012 at $3.84 a gallon, according to a CNN review of federal data that goes back to 1990.

Current prices are just shy of that. The national average for regular gas is $3.82 a gallon as of Friday, according to AAA.

Normally, prices at the pump cool off as the summer winds down. Not this year.

Read more here.

UP NEXT

The US Labor Department releases August figures on the labor market, including monthly payroll gains, wage growth and the unemployment rate.

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WHAT WE'RE READING AND WATCHING

▸ Hurricane Idalia's price tag could reach $20 billion (CNN)
▸ UBS will cut 3,000 jobs in Switzerland as it absorbs Credit Suisse (CNN)
▸ How sharks avoid the wrath of an extreme hurricane (Vox)
▸ Student paper front page displays community's texts during shooting (CNN)

FINAL WORD

China is still suffering from declining factory output

Factory activity in China contracted for a fifth straight month in August, adding pressure on Beijing to roll out more stimulus measures to bolster the faltering economy.

The official Purchasing Managers' Index (PMI) — which surveys larger companies and state-owned enterprises — stood at 49.7 in August, up from July's 49.3, according to data released by the government's National Bureau of Statistics (NBS) on Thursday. A reading above 50 indicates expansion, while anything below that level shows contraction.

It was the third straight month that the index had improved from the previous month, and it was better than economists were expecting. (And a private survey published Friday suggests smaller manufacturers may be faring better.)

However, China's vast manufacturing industry has now been contracting since April, according to the data, and there was more evidence Thursday that other areas of the economy are weakening.

Read more here.