Backlogs in construction and rising commodity prices led to tight supply in the housing market, thus creating a surge in housing prices over the past year. However, as demand has started to decline lately, homebuilder stocks Lennar (LEN), KB Home (NYSE:KBH), Meritage Homes (NYSE:MTH), and LGI Homes (NASDAQ:LGIH) might witness a correction in the near term.The proliferation of remote work, low mortgage rates, and diminished supply caused an increase in the U.S. new home sales in July 2021 by 1% following a significant decline for three straight months. Demand for homes is slowing in response to higher prices.
The national inventory of active listings decreased 25.8% year-over-year in August. The median national home price for active listings declined from $385,000 in July to $380,000 in August.
Given such volatility in the housing market, fundamentally weak homebuilder stocks such as Lennar Corporation (NYSE:LEN), KB Home (KBH), Meritage Homes Corporation (MTH), and LGI Homes, Inc. (LGIH) could witness a deeper correction in the near term. So, these stocks are best avoided now.