Abhijith Ganapavaram and Kannaki Deka

(Reuters) – U.S. housebuilders are likely to find it difficult in coming months due to rising mortgage rates. Inflation has also cut into the demand. Analysts from the industry said that this may make profit growth slow down.

D.R. D.R. Lennar The earnings season for Corp (NYSE :), PulteGroup (NYSE 🙂 and the other homebuilders is expected to be strong, however the U.S. housing boom shows signs of cooling down as high inflation puts the U.S. Federal Reserve in a position for rapid rate increases.

A 30-year fixed-rate mortgage rate, which is the most sought-after U.S. loan for home purchases, has risen above 5%. It makes it more difficult for low-income buyers to afford homes, as well as first-time homebuyers.

Ralph McLaughlin from Kukun’s chief economist said, “First-time homebuyers are getting a double and even triple whammy right right now.” He added that prices should not rise at this time.

The pandemic has seen home prices rise as people moved to the suburbs in search of larger houses. They were encouraged by the low mortgage rate and the move to work from-home. The median house price rose 15% to $375,000.300 in March, compared with a year ago.

THE CONTEXT

D.R. As a result of strong demand, Horton and PulteGroup reported solid profits over the past year.

However, in the next earnings round, it will focus on how these businesses plan to manage a drop in demand as well as higher construction costs due rising inflation.

U.S. sales of homes fell to its lowest level for nearly two decades in March. A report from the National Association of Home Builders also showed that the percentage of people who are planning to purchase a home within the next 12 months fell to their lowest point since mid 2020.

“We anticipate price increases to slow down and buyers in bidding battles to have fewer competitors offers,” Redfin (NASDAQ:) Daryl Fairweather, Chief Economist said in a report.

FUNDAMENTALS

* Analysts estimate D.R. Horton’s Q2 revenue to grow 18% to $7.62 billion when it reports results on April 26

* Earnings per share is estimated at $3.37

* The stock has lost about 34% of its value this year

* For Lennar, analysts estimate Q2 revenue to grow 36.9% to $8.16 billion

* Earnings per share is estimated at $3.95

* The stock has lost about 33% of its value this year

* PulteGroup’s Q1 revenue is expected to grow 12.6% to $3.07 billion

* Earnings per share is estimated at $1.71

* The stock has lost about 37% of its value this year

WALL STREET SENTIMENT

* For DHI, 15 out of 21 analysts rate the stock “buy” or higher, while 6 have a “hold” rating

* The median price target is $115

* For LEN, 14 out of 20 analysts rate the stock “buy” or higher, while 5 have a “hold” rating and one “sell” rating

* The median price target is $121.5

* For PHM, 10 out of 18 analysts rate the stock “buy” or higher, while 8 have a “hold” rating

* The median price target is $65.5