One hot housing stock could soon see big headwinds

Housing stocks have been on a tear this year, and homebuilder Lennar is no exception. Its shares have rallied 42 percent in 2017, far outpacing the S&P 500.

However, multiple fundamental headwinds have the potential to place pressure on the stock going forward, according to Mark Tepper, president at Strategic Wealth Partners. Here are his reasons.

  • Improving labor markets, declining unemployment rates and a limited home supply have indeed proven supportive for home prices and the homebuilders' top lines. Still, single-family housing starts are up less than 1 percent year-over-year.
  • Higher interest rates on the back of a pickup in inflation expectations dim the affordability outlook. Similarly, a red-hot economy should stoke inflation expectations, which would likely in turn take the 10-year Treasury and mortgage rates higher.
  • The threat of changes to mortgage interest deductibility in pending tax reform also hinders the outlook for housing affordability, and sky-high lumber prices are biting into margins.
  • Should new homes become less affordable, at a time when millennials are taking steps into the housing market, this could place homeownership out of reach.

Bottom line: Shares of homebuilder Lennar could face headwinds on multiple fronts after a big run this year.

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