Homebuilder stocks soared to unprecedented heights on Friday, fueled by a favorable inflation report that solidified expectations for forthcoming interest rate reductions in September.
The Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s preferred gauge of inflation, decreased from 2.6% year-on-year to 2.5% in June 2024, aligning with projections.
The iShares U.S. Home Construction ETF (ITB), a pivotal benchmark for monitoring U.S. homebuilder equities, surged by 3.8%, marking an impressive third consecutive week of growth.
Chart: U.S. Home Construction ETF Reaches Record Highs
Over the last three weeks, U.S. homebuilder stocks have surged by over 20%, driven by the expectancy of lower interest rates benefiting rate-sensitive sectors such as home construction.
Market participants have now fully factored in a Federal Reserve rate cut in September, with further anticipations for at least one additional reduction by December 2024.
Analyst Rafe Jadrosich from Bank of America remarked, “Homebuilders are currently trading at the high end of the historical valuation range, a justified move given the higher return-on-equity (ROE). Our average forecast indicates a 22% return-on-equity compared to the 2019 level of 20%.”
Bank of America highlighted that similar valuation levels in 2018 and 2021 led to sharp pullbacks when the Fed raised rates. However, the scenario in the latter half of 2024 seems distinct, with expectations of rate reductions from the Fed.
On Friday, Bank of America significantly upgraded Mohawk Industries, Inc. (MHK) from Underperform to Buy, raising their price target from $120 to $177, citing strong Q2 2024 earnings.
Top-Performing Homebuilder Stocks In July 2024
The top ten best-performing stocks in the U.S. Home Construction ETF this month are:
| Name | Price Chg. % (MTD) |
| Mohawk Industries, Inc. | 37.16% |
| M/I Homes, Inc. | 35.92% |
| Green Brick Partners, Inc. | 31.50% |
| American Woodmark Corporation | 28.44% |
| Dream Finders Homes, Inc. | 27.42% |
| JELD-WEN Holding, Inc. | 26.80% |
| Installed Building Products, Inc. | 26.65% |
| D.R. Horton, Inc. | 26.29% |
| Tri Pointe Homes, Inc. | 26.26% |
| Century Communities, Inc. | 26.05% |
Latest Mortgage Rates, Housing Market Data
The Mortgage Bankers Association recently disclosed that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less decreased by 5 basis points to 6.62% for the week ending July 19, 2024.
Despite the decline in borrowing costs, various housing market indicators reveal a grim outlook.
Homebuilder confidence plummeted to 42 in July, marking its lowest figure year-to-date according to Bank of America.
Chief economist for LPL Financial, Jeffrey Roach commented, “The scant supply of homes and elevated interest rates have plummeted affordability to immediate lows.”
The National Association of Realtors noted a substantial 5.4% drop in existing home sales for June, representing the most substantial monthly decline since 2022.
Furthermore, the U.S. Census Bureau unveiled that new single-family home sales decreased by 0.6% month-over-month to a seasonally adjusted annual benchmark of 617,000 in June 2024, the lowest in seven months and below projections of 640,000, owing to enduring high prices impacting affordability.
The median sales price of existing homes rose by 4.1% year-over-year, establishing a new record peak.
Now Read:
