Rosalind Evans
The stock market has witnessed a surge in home builder stocks as many Americans are increasingly preferring new constructions over the traditionally expensive existing housing market.
The US has seen a rise in mortgage rates over the last year, driven by the Federal Reserve’s efforts to combat inflation by hiking interest rates. This uptick in mortgage rates and a limited house supply, due to homeowners clinging to their pandemic-era low mortgage rates, has made homes the least affordable since 1984.
While there was a recent dip in US mortgage rates, the 30-year fixed rate still hovers at 7.18% as of August 31, a notable rise from 5.66% a year earlier.
Disappointed by the severe competition for limited houses in preferred locations and aiming to sidestep bidding wars, a segment of Americans is turning to new builds.
This shift has propelled the shares of home builders. For instance, Pultegroup’s stocks skyrocketed by roughly 80%, Toll Brothers saw a 64% increase, DR Horton’s stocks went up by 34%, and Lennar’s stocks climbed 32%, all surpassing the S&P 500 index’s gain of about 17% this year.
A recent report by Bank of America analysts anticipates an accelerated housing start rate by home builders in the latter half of the year.
Berkshire Hathaway, led by Warren Buffett, disclosed a significant investment in companies like Lennar, DR Horton, and NVR earlier this month, pushing up some home builder stocks, although a few dipped in August in line with the general market trend.
Anna Rathbun, CIO at CBIZ Investment Advisory Services, predicts the upward trend in home builder stocks to persist given the high mortgage rates and scarce supply. Rathbun also highlighted the surge in furniture stocks, like Wayfair and La-Z-Boy, suggesting Americans are refurbishing their existing homes.
In Other News:
– Labor Day Gas Prices Approach Record Levels: As motorists set out for Labor Day weekend, they will face some of the highest gas prices for this season. The highest gas price for this period was $3.84 per gallon in 2012. The current national average is close to $3.82 per gallon, per AAA’s data.
– Continuous Decline in China’s Factory Production: For the fifth consecutive month, China’s factory activity reduced in August, putting Beijing under pressure to introduce more economic stimuli. The official PMI was 49.7 in August, a minor improvement from July’s 49.3, as per the National Bureau of Statistics. Despite the slight uptick, the nation’s manufacturing sector has been on a downward trend since April.
In an evolving global economic landscape, the upward trajectory of home builder stocks is a testament to shifting housing preferences among Americans. While certain sectors like home construction and furniture experience growth, challenges in other areas like fuel prices and international manufacturing dynamics underscore the complexities of the current economic environment. It will be pivotal for investors and consumers alike to stay informed and adapt to these changes as they continue to unfold.
