Homebuilders climb even as housing outlook remains cloudy

In this March 18, 2020 photo, Construction continues at a housing plan in Zelienople, Pa.,  The housing market has stalled, but homebuilder stocks are up sharply amid signs that sales are starting to improve. Still, the outlook for a housing market recovery remains cloudy, given uncertainty over the pandemic's impact. (AP Photo/Keith Srakocic)
In this March 18, 2020 photo, Construction continues at a housing plan in Zelienople, Pa., The housing market has stalled, but homebuilder stocks are up sharply amid signs that sales are starting to improve. Still, the outlook for a housing market recovery remains cloudy, given uncertainty over the pandemic's impact. (AP Photo/Keith Srakocic) (Copyright 2020 The Associated Press. All rights reserved)

LOS ANGELES – The U.S. economy and housing market had set homebuilders up for a strong 2020.

That was before the efforts to stem the spread of the coronavirus pandemic knocked the economy into a skid, dimmed consumer confidence and left a record number of Americans unemployed.

The housing market stalled in March as many would-be buyers held off on purchases. Sales of newly built and previously occupied U.S. homes fell sharply. Home construction slowed. The April data out so far shows the housing slowdown continued last month.

And yet, you wouldn’t know it by looking at homebuilder stocks. While shares in most of the builders are still in the red for the year, the majority of them have notched big gains so far this month that eclipse those of the S&P 500 by a wide margin. An S&P index of homebuilders is up 11.8% in May, versus a 1.2% gain for the broad-market S&P 500 index.

In recent weeks, as builders reported quarterly results, many have said business was going great until mid-March, when the coronavirus shutdowns began. But several also noted that business started to improve by mid-April and has continued to do so into May, said Carl Reichardt, a homebuilding analyst with BTIG.

“The critical question is how much of the improvement we’ve seen was simply the release of pent-up demand from the period of time of four weeks in mid-March to mid-April when business was frozen,” Reichardt said. “It’s hard to answer that question right now.”

The builders that have tended to weather the coronavirus slowdown better have been those, such as D.R. Horton and Lennar, that sell lower-priced homes for the entry level segment of the market, especially in the Southeast, and those that build ready-to-sell homes, rather than the built-to-order model, Reichardt said.

The housing market appeared set to extend a solid run-up in sales that began last fall as mortgage rates headed lower. The inventory of U.S. homes for sale had dwindled to the lowest level in more than a decade and a solid job market and low unemployment rate combined with more millennials entering their 30s led economists to forecast strong demand for housing this year.