2 Dealing with stock housing market fallout

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The early-year rally continued for the stock market on Wednesday, with big gains for major market benchmarks. The Nasdaq Composite (^IXIC 1.76%) Seen the biggest gains, but upward progression for this S&P 500 (^GSPC 1.28%) And Dow Jones Industrial Average (^DJI 0.80%) Signals broad-based interest in stocks across the board.

index

Daily percentage change

Daily point changes

Dao

0.80%

269

S&P 500

1.28%

50

Nasdaq

1.76%

189

Data source: Yahoo! Financing.

Even as the stock market looks more bullish, there are still plenty of questions on the macroeconomic front. In particular, large increases in interest rates have had a substantial impact on home affordability, and this has impacted both mortgage financing companies and homebuilders adding new supply to the housing market. Below, you can find out about the latest news from here Wells Fargo (WFC 0.90%) And KB Home (KBH 3.13%) And what that could mean for the broader market, both across housing and various industrial stocks.

Wells Fargo returns on mortgage loans

Shares of Wells Fargo rose nearly 1% on Wednesday. The bank announced late Tuesday that it will make a major strategic change with implications for mortgage customers.

Wells said it will focus its home loan business opportunities with the goal of serving more of its bank customers with potential clients from minority communities. To free up power for those efforts, Wells said it would stop making correspondent loans, which involve buying mortgage loans from other lending institutions. Additionally, the bank will cut the size of its mortgage servicing portfolio.

In addition to internal efforts to serve the bank’s customers and underserved communities, Wells will add to its Special Purpose Credit program, as well as invest $100 million to advance racial equity in homeownership. The bank will deploy more of its mortgage professionals to local minority communities.

Given the sheer size of the associated lending business, Wells Fargo’s strategic shift is a big deal. Some investors, however, believe the move is an important sign that years of customer scandals may finally begin to lift the clouds that have hung over the bank.

KB Home stock falls despite rise

Meanwhile, shares of KB Home fell 3% in after-hours trading, giving up gains from the regular session. The homebuilder reported its fourth-quarter financial results for the period ended Nov. 30, and despite the strong momentum, signs of a possible slowdown still have shareholders worried about the future.

KB Home’s quarterly numbers looked good. Revenue rose 16% year over year to $1.94 billion and earnings per share of $2.47 were up 29% from the same period a year ago. The company’s book value rose to $43.59 per share, up 27%, with strong gains in return on equity. For the full fiscal year, earnings exceeded $9 per share, up more than 50%.

However, investors are focused on CEO Jeffrey Mezger’s vision. KB Home’s top executive is confident about the long-term prospects for housing, but high mortgage rates and persistent inflation are making home buyers more cautious about buying. KB Home also said it plans to be more aggressive with pricing heading into the spring selling season to encourage more new orders.

Earnings multiples of KB Home and other homebuilders are at rock-bottom levels, as most investors expect a dramatic pullback in profits due to deteriorating housing market conditions. In a worst-case scenario, anything could actually help KB Home and its housing-stock peers move their stock prices in the right direction.

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company Dan Caplinger has no positions in any of the stocks mentioned. The Motley Fool recommends KB Home. Motley Fool has a revealing policy.


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