Home price increases are being driven by several factors, including an acute housing shortage and rising prices for construction labor and materials. (Getty Images)
Homebuilder stocks were among the biggest gainers in 2017, with many of the largest companies gaining more than 50 percent last year, but now the party is over.
Although the economy is strong – which you’d think would fuel more home buying – homebuilder stocks are being crushed this year. Toll Brothers (ticker: TOL) stock is down 23 percent year-to-date, Lennar Corp. (LEN) is down 20 percent, KB Home (KBH) is down 19 percent, D.R. Horton (DHI) down 19 percent and PulteGroup (PHM) is down 13 percent. That’s compared to the overall S&P 500 index, which has been volatile but is nevertheless still up 2 percent since the beginning of the year.
What’s going on? Although the job market is strong, home prices have risen far faster than wages since they bottomed out in the financial crisis, and that disconnect is expected to widen further, making it harder to afford a new home, especially for first-time homebuyers. Meanwhile, memories of the housing bust in 2007 still linger for existing homeowners, making many Americans more reluctant to upgrade to a bigger, more expensive abode.