The United States Federal Reserve has elected to pursue the most aggressive interest rate tightening program since the early 2000s. Unsurprisingly, this had a significant impact on equity and bond markets, as well as the U.S. real estate sector. However, home builder stocks put together a solid performance in 2023. Should investors expect that to continue in 2024? Let’s jump in.
In late December, mortgage rates in the U.S. fell from a 23-high of 8% to 7%. Meanwhile, home prices in major metropolitan areas have softened but shown resilience due to several key factors. Annual population growth in the U.S. has hovered around half a percentage point. Housing supply has failed to keep up with this growth in recent years, which has propped up prices even as interest rates have spiked.
A November report from the National Association of Realtors recently stated that these conditions were hard on first-time buyers. However, inventory has improved thanks to home builders. Danielle Hale, the chief economist at Realtor.com, called that inventory improvement a “step in the right direction”.
KB Home (NYSE:KBH), a Detroit-based homebuilding company, has seen its stock shoot up 92% year-over-year as of close on Friday, December 29. CEO Jeffrey Mezger was encouraged by the market trajectory in 2023, stating; “We’ve been pleasantly surprised with how strong 2023 has been, when you put it into the context of how rates have continued to tick upward.”
Other top homebuilder stocks like Toll Brothers (NYSE:TOL) and Tri Pointe Homes (NYSE:TPH) have climbed 103% and 86%, respectively, in the year-over-year period.
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