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.