Stocks of home builders rise as more people look for new buildings

Stocks of home builders are on a roll, thanks to a rise in demand as some Americans avoid the historically tight and expensive housing market.

In the US, mortgage rates have gone up a lot in the past year because the Federal Reserve raised interest rates to fight inflation. In addition to this, there is a limited supply of homes currently available on the market as a result of owners' reluctance to give up the meagre mortgage rates they secured during the height of the pandemic. As a result, the cost of real estate is currently at its highest level since 1984.

This week, US mortgage rates went down, ending a five-week run of increases. But the 30-year fixed-rate mortgage is still high. In the week ending August 31, the average rate was 7.18%, up from 5.66% at the same time last year.

Some Americans are building new homes instead of buying existing ones because they are tired of the intense competition for the few houses available in the neighbourhoods they want to live in or because they want to avoid bidding wars altogether.

That has been good for stocks of house builders. The average S&P 500 index is up about 17% this year, while Pultegroup shares are up about 80%, Toll Brothers shares are up about 64%, DR Horton shares are up about 34%, and Lennar shares are up about 32%.

In a recent study, analysts at Bank of America said they expect home builders to start more homes in the second half of this year.

A securities report from earlier this month showed that Berkshire Hathaway, which is run by Warren Buffett, has put a lot of money on Lennar, DR Horton, and NVR. That helped some home builder stocks go up, but many still went down in August with the rest of the market.

Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services, says that as long as mortgage rates stay high and supply stays low, home builder stocks will continue to rise. "This is an impossible market if you're a first-time buyer," she said.

This year, furniture stocks have also gone up, which Rathbun says that Americans who can't or don't want to move are instead making their homes look better. Wayfair's stock has gone up about 110%, RH's is up 37%, La-Z-Boy's is up 35%, and Ethan Allen's is up 21%.