The Fed went ahead with a second consecutive 75 bps interest rate hike yesterday as it tries to bring down the soaring inflation. While markets await another hike in September, rising home prices and higher mortgage rates have created an “affordability ceiling,” especially for first-time buyers.

According to the National Association of Realtors, signed contracts to purchase existing homes dropped 20% year-over-year in June. Moreover, home builder sentiment slipped 12 points to a record low of 55 this month, hitting the lowest level since the onset of the pandemic.

“Production bottlenecks, rising homebuilding costs, and high inflation are causing many builders to halt construction because the cost of land, construction, and financing exceeds the market value of the home,” Jerry Konter, NAHB chairman and a homebuilder in Savannah, Georgia said.

Given the backdrop, fundamentally weak stocks, Five Point Holdings, LLC (FPH), The Howard Hughes Corporation (HHC), and LGI Homes, Inc. (LGIH) might be best avoided now.

Five Point Holdings, LLC (FPH)

FPH, through its subsidiary, Five Point Operating Company, LP, owns and develops mixed-use and planned communities in Orange County, Los Angeles County, and San Francisco County. The company operates in four segments: Valencia; San Francisco; Great Park; and Commercial.

FPH’s total revenues came in at $4.89 million for the first quarter ended March 31, 2022, down 62.9% year-over-year. Its net loss increased 75.2% year-over-year to $17.13 million, while its loss per share came in at $0.25, up 78.6% year-over-year.

The stock has slumped 35.8% year-to-date to close the last trading session at $4.20.

FPH’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which indicates a Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Also, the stock has a D grade for Growth. Click here to access the additional POWR Ratings for FPH (Value, Momentum, Stability, Sentiment, and Quality). FPH is ranked #22 out of 24 stocks in the Homebuilders industry.

The Howard Hughes Corporation (HHC)

HHC owns, manages, and develops commercial, residential, and hospitality operating properties in the United States. It operates through four segments: Operating Assets; Master Planned Communities (MPCs); Seaport District; and Strategic Developments.

HHC’s total revenues increased 10.3% year-over-year to $210.23 million for the first quarter ended March 31, 2022. However, its condominium rights and unit sales came in at $19.62 million, down 47.2% year-over-year. Moreover, its other land, rental, and property revenues came in at $19.54 million, down 15.9% year-over-year.

HHC’s revenue is estimated to decrease 35.1% year-over-year to $865.47 million in 2023. Its EPS is expected to decrease 54.7% year-over-year to $1.43 in 2023. The stock has lost 29.9% year-to-date to close the last trading session at $71.32.

HHC has an overall D grade, equating to Sell in our POWR Ratings system. Click here to access all the HHC ratings. It is ranked #23 in the Homebuilders industry.

LGI Homes, Inc. (LGIH)

LGIH designs, constructs, and sells homes. It offers entry-level homes, such as attached and detached homes, active adult homes under the LGI Homes brand name, and luxury series homes under the Terrata Homes brand name.

On July 25, 2022, LGIH announced the grand opening of Meadows Farm, its newest community in the Atlanta market. However, it might take some time for the company to realize substantial returns.

For the first quarter ended March 31, 2022, LGIH’s home sales revenues came in at $546.05 million, down 22.7% year-over-year. Its net income came in at $78.69 million, down 21% year-over-year. Also, its EPS came in at $3.25, down 17.7% year-over-year.

LGIH’s EPS is expected to decline 10.2% year-over-year to $16.87 in 2023. The stock has lost 29.8% year-to-date to close the last trading session at $108.44.

LGIH’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. In addition, the stock has a D grade for Value, Stability, and Sentiment.

We also have graded LGIH for Growth, Momentum, and Quality. Click here to access all of LGIH’s ratings. The stock is ranked last in the same industry.

FPH shares were unchanged in premarket trading Thursday. Year-to-date, FPH has declined -35.78%, versus a -14.94% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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