The U.S. housing market, which has experienced tumultuous conditions due to persistent interest rate hikes, is showing signs of stabilization. An upward revision of U.S. gross domestic product growth in the second quarter has led to a reassessment of expectations for a substantial rate cut next month. While mortgage rates are expected to decrease, experts advise homebuyers to act swiftly to secure the best deals before the window of opportunity closes.
Looking ahead, the market is expected to remain strong over the next five years, with some significant shifts. Home prices are projected to continue rising, albeit at a slower pace than in recent years, offering a more gradual increase for buyers. The supply of homes is expected to grow, addressing the previous shortage and potentially easing the inventory crunch that has driven up prices.
Despite the Federal Reserve’s past rate hikes, which have raised borrowing costs and dampened buyer enthusiasm, a gradual rate decline could rekindle demand and revitalize the market. Competition, however, will remain fierce due to robust job growth, population expansion, and limited land availability.
2024 Forecast
The U.S. housing market is anticipated to slow in 2024, with home prices either stabilizing or seeing a slight decline. Zillow’s latest forecast for 2024 projects a 1.8% national increase in home values, indicating a period of market stability.
Stock Opportunities
With home prices expected to remain stable or increase modestly, homebuilders are poised to benefit from sustained demand and favorable conditions. This stability should support their revenue growth through ongoing construction and sales. Here are three top homebuilders to consider:
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D.R. Horton, Inc. (DHI):
DHI stock has surged over 58% in the past year. Wells Fargo recently raised its price forecast to $220 from $210 while maintaining an Overweight rating. Investors can consider the iShares U.S. Home Construction ETF (ITB) for exposure.*
Lennar Corporation (LEN):
LEN stock has risen more than 52% in the past year. Wells Fargo increased its price forecast to $195 from $185, also maintaining an Overweight rating. The AdvisorShares Gerber Kawasaki ETF (GK) offers a way to invest in Lennar.*
Toll Brothers, Inc. (TOL):
TOL stock has jumped over 75% in the past year. Wedbush raised its price forecast to $148 from $120, keeping a Neutral rating. The Invesco Dorsey Wright Consumer Cyclicals Momentum ETF (PEZ) provides investment exposure.Overall Outlook
The U.S. housing market is poised for stability this year, with modest price increases and benefits for homebuilders. Prices are projected to rise 3-5% annually through 2029, while mortgage rates are expected to stabilize above pre-pandemic levels. This evolving landscape, marked by a shift towards suburban and rural demand and technological advancements, will require buyers and investors to remain informed and adaptable.
