Homebuilders Finally See Some Relief After Analyst Upgrade

(Bloomberg) -- An exchange-traded fund tracking homebuilders climbed the most in more than six months Thursday, offering the battered sector a reprieve, following a bullish call on Wall Street and a rebound in U.S. pending home sales.

The 36-company SPDR S&P Homebuilders ETF, known as XHB, rose as much as 3.3 percent, the most intraday since April 4, after Evercore ISI analyst Stephen Kim upgraded six stocks. He said the sector’s winter rally, which usually begins in October or November, has “an impressive track record of outperformance.” Meritage Homes Corp., which was upgraded to overweight, jumped as much as 9.4 percent in its biggest gain since January 2016.

“We believe this slowdown is a pause, rather than a turn in the cycle,” Kim wrote in a note to clients Thursday. “While we cannot say exactly where the bottom in this volatile group will occur, we would rather buy the stocks a few weeks early than a few days late.”

Homebuilders Finally See Some Relief After Analyst Upgrade

Investors pulled around $52 million from XHB on Wednesday, its largest outflow since August. The outflow reduced the fund’s assets by 7.8 percent to around $614 million.

“The rally today was earnings inspired but the flows over past week were bargain hunting,” said Bloomberg Intelligence analyst Eric Balchunas. “Flows showed some investors thought homebuilders were oversold and looks like they were right. This is intra-year bargain hunting.”

A comeback in U.S. pending home sales may also be contributing to the rebound in the sector. Contracts to buy previously owned U.S. homes rose for the first time in three months, indicating that the recent market slump may be starting to stabilize, National Association of Realtors data showed Thursday.

The Standard and Poor’s Supercomposite Homebuilding Index is still down 34 percent this year amid concerns about a slowdown in demand and affordability issues. Industry executives have attempted to calm investor fears in their recent earnings reports.

“The critical underpinnings that have supported a slow but steady housing recovery, including a strong economy, low unemployment, high consumer confidence and limited home inventory, remain solidly in place,” PulteGroup Inc. Chief Executive Officer Ryan Marshall said Tuesday. “The overall housing recovery remains on track.”

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