D.R. Horton-Why DR Horton & Pulte Group Are Underperforming Despite Rate Cuts

Group 1: Housing Market Trends - The theme of housing stocks, including home improvement players and builders like DR Horton and Pulte Group, has gained about 23% year-to-date, in line with the S&P 500's 22% gain [1] - New single-family house sales in September 2024 were at a seasonally adjusted annual rate of 738,000, which is 6.3% above the September 2024 estimate and up about 4% from August [1] - Prices for new homes have remained flat at $426,300 compared to a year ago, while elevated existing home prices are driving buyers toward new homes [1] Group 2: Impact of Federal Reserve Actions - The Fed's recent 50 basis point rate cut to 4.75% to 5% has not significantly boosted housing stocks, with major builders like Lennar, DR Horton, and Pulte Group seeing stock price drops of 7 to 8% [2] - Although the rate cut initially lowered 30-year fixed mortgage rates to around 6.20%, rates have since risen to 6.50%, which may dampen home sales in October [2] - The Fed's commentary suggests potential further rate cuts, which could lead some home buyers to delay purchases [2] Group 3: Company Performance and Future Outlook - Pulte Group's stock has generated better returns than the broader market, with returns of 34% in 2021, -19% in 2022, and 129% in 2023 [3] - The fundamental under-supply of homes in the U.S. is expected to provide good demand visibility for major housing players, with volumes and revenues likely to hold up in the long run [3] - Pulte Group reported earnings of$ 3.35 per share, up from $2.90 in the year-ago quarter, with home closings rising 12% [3]