The housing stocks sector, which includes companies like DR Horton and Pulte Group, has performed well this year, rising by about 13% year-to-date compared to the S&P 500’s 11% gain. However, high mortgage rates have caused existing homeowners with locked-in lower rates to stay put, leading to a shortage of existing homes for sale. Sales of existing homes have dipped by 4.3% in March, while sales prices have increased. On the other hand, new home sales have risen by 8.8% in March, with median sales prices declining by about 2% due to lower input material prices.
DHI stock has seen strong gains of 115% from early 2021 to now, outperforming the broader market in each of the last 3 years. Returns for the stock were 57% in 2021, -18% in 2022, and 70% in 2023, compared to the S&P 500’s returns of 27% in 2021, -19% in 2022, and 24% in 2023. Despite the uncertain macroeconomic environment with high oil prices and elevated interest rates, housing players like DR Horton could see a strong jump given the fundamental under-supply of homes in the U.S. The Federal Reserve’s potential interest rate cuts could help bring down mortgage rates and stimulate demand further.
It is difficult to gauge the near-term outlook for the housing stocks theme, but there is a fundamental under-supply of homes in the U.S., providing good demand visibility for major housing players like PulteGroup and DR Horton. The Federal Reserve’s interest rate cuts could also help bring down mortgage rates and stimulate demand, benefiting companies in the housing sector. Overall, the housing market continues to face challenges due to high mortgage rates and a shortage of existing homes for sale, but new home sales have seen an increase, potentially due to declining input material prices.
The average 30-year fixed mortgage rate in the U.S. rose to about 7.2% in early May from about 6.6% in early January due to concerns about inflation. High mortgage rates have caused existing homeowners to stay put, leading to a shortage of existing homes for sale. Sales of existing homes have dipped by 4.3% in March, while sales prices have increased by 4.8% from a year ago. However, new home sales have risen by 8.8% in March, with median sales prices declining by about 2% due to lower input material prices. Companies like DR Horton and PulteGroup could benefit from the current market dynamics.
