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ERROR: type should be string, got "https://www.wsj.com/articles/home-builder-rally-may-lose-steam-in-second-half-11562682351\nHome-Builder Rally May Lose Steam in Second Half\nBuilders are counting on lower interest rates to spark sales\nNew home sales fell 7.8% between April and May, dropping nearly 36% on the West Coast Photo: mike blake/Reuters\nWill Parker\nJuly 9, 2019 10:25 am ET\nHome-builder shares soared during the first half of 2019 with help from falling interest rates, but some analysts warn that slowing home sales and a tight labor market could weigh on these companies in the second half of the year.\nThe S&P Homebuilders Select Industry index is up 28.8% year to date, making it one of the top-performing sectors and outpacing the S&P 500 stock index’s 18.7% return over that period.\nWith interest rates easing, borrowing costs have been falling sharply. The 30-year mortgage rate has slid to 3.75%, its lowest level in more than two years. That favorable backdrop for home buyers has helped lift home builder sentiment and led analysts to upgrade some companies. Financial-services firm Wedbush, for example, upgraded Lennar Corp. , the largest U.S. home builder last month, citing lower rates.\nThe boon of low rates “has been apparent in the strong mortgage demand data and will in all-likelihood be reflected in improving home sales data this summer,” said Alex Pettee, president and director of research at investment advisory Hoya Capital Real Estate.\nThe industry has also benefited from falling lumber prices.\nBut builder confidence, as measured monthly by the National Association of Home Builders, declined from May to June. The confidence rating is now lower than it was at the same time last year.\nBuilders cited increased construction costs overall, a labor shortage and trade tension with China, a source of materials. During an earnings call on June 25, a Lennar executive cited tariffs on Chinese goods, specifically, as an operating headwind. The stock price fell 6.2% that day.\nAnalysts also pointed to disappointing recent sales figures during what is typically the most robust time of year. New home sales fell 7.8% between April and May, dropping nearly 36% on the West Coast. Sales of existing homes rose last month, but remained below 2018 levels. Single-family housing starts also fell more than 6% in May.\nSpring selling season accounts for more than 40% of annual sales revenue for many builders, and with that period now over, further earnings declines will likely follow, said Kenneth Leon, global director of industry and equity research at CFRA.\n“Expectations are going to be less and that will factor into perhaps lower revenue and lower earnings estimates,” he said.\nPart of the challenge for builders is meeting demand at the lower end of the market, where new construction—which sells at a premium to existing homes—has to compete.\n“The biggest difficulty of housing is those entry-level starter homes,” said Raymond James analyst Buck Horne. “We’re building about 200,000 houses under $250,000 a year. That number used to be 700,000.”\nThe home-building industry has benefited from falling lumber prices. Photo: David Paul Morris/Bloomberg News\nSales at KB Home , a builder that specializes in the starter-home market, decreased in the second quarter compared with the year prior. But the company saw a 15% increase in new orders, increasing market share in markets such as Denver and Houston.\nSome home builders are also tapping into the leasing market, building single-family homes for rent. They hope this could meet the increasing demand from people struggling to buy. ERC Homebuilders, Lennar and Toll Brothers Inc. have launched or expanded their build-to-rent offerings in the last year.\n“[Build-to-rent] only accounts for about 6% of total housing starts,” Mr. Pettee said. “But you could easily see that go to 10 or 12% in the next five years.”\nPulteGroup Inc., another publicly traded builder, said in April that it had increased its supply of homes targeted toward first-time buyers.\nApartment Demand Hits Five-Year High\nFewer Renters Believe They Are Likely to Ever Own a Home\nAffordable Housing Crisis Spreads Throughout World\nHome Prices Decelerated in April\nWrite to Will Parker at will.parker@wsj.com\nHome-builder shares soared in the first half of 2019, helped by falling interest rates, but some analysts warn the rally may fizzle in the second half"