D.R. Horton, Inc. (DHI Quick QuoteDHI - Free Report) crafts a new 52-week high of $108.87 on Dec 9, 2021. The stock pulled back to end the trading session at $106.96.

In addition to D.R Horton, other homebuilding stocks like Lennar Corp. (LEN Quick QuoteLEN - Free Report) , NVR, Inc. (NVR Quick QuoteNVR - Free Report) and Tri Pointe Homes, Inc. (TPH Quick QuoteTPH - Free Report) attained their respective 52-week high level on Dec 9.

The surge was probably due to a drop in mortgage rates accompanied by a surge in mortgage applications.

In fact, D.R Horton has gained 55.1% year to date, faring better than the Zacks Building Products - Home Builders industry and Zacks Construction sector’s 35.6% and 30.2% rally, respectively. The stock has also outperformed the S&P 500 Index’s 26.2% rise.

Image Source: Zacks Investment Research

Key Takeaways

Per Freddie Mac’s latest Primary Mortgage Market Survey, the average U.S. 30-year fixed-rate mortgage for the week ended Dec 9 declined slightly to 3.10% from 3.11% a week ago. The metric, however, was higher than 2.71% recorded in the corresponding prior-year period.

Yet, Freddie Mac highlighted the fact that future rates are more dependent on information about the Omicron variant and the overall trajectory of the pandemic. Meanwhile, it acknowledges that rates remain low and stable, even with declining housing affordability and low inventory.

Separately, per the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association (“MBA”), overall mortgage application volume was up 2% week over week for the week ended Dec 3, 2021. The survey further revealed that the surge was mainly buoyed by government refinancing, given lower Federal Housing Administration or FHA rate.

In this connection, Joel Kan, MBA's Associate vice president of Economic and Industry Forecasting, said, “Mortgage rates declined for the first time in a month, prompting a pickup in refinancing, with government refinances increasing more than 20 percent over the week. While the 30-year fixed mortgage rate and 15-year fixed mortgage rate both declined only one basis point, the FHA rate fell 7 basis points, driving the surge in government refinances. Borrowers are continuing to act on these opportunities, but if rates trend higher as MBA is forecasting, the window of opportunity to refinance will continue to get smaller."

Homebuilding Industry Performance

Overall, the U.S. housing market seems to be doing well, defying headwinds like low inventory level, rising prices, supply-chain disruptions, higher labor costs and the ongoing public health risks associated with the pandemic.

So far this year, the Zacks Building Products - Home Builders industry has widely outperformed the broader market (S&P 500), as you can see above. The industry falls within the top 26% (65 out of 253 industries) of the Zacks Industry Rank, which hints at further growth.

Zacks Rank

While Tri Pointe currently sports a Zacks Rank #1 (Strong Buy), D.R Horton, Lennar and NVR currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Here’s a brief overview of the other stocks.

The Irvine, CA-based homebuilder TRI Pointe designs, constructs, and sells single-family detached and attached homes in the United States. Robust demand and pricing as well as improved operating leverage have been driving TRI Pointe's performance. Cost-cutting initiatives implemented earlier this year and focus on entry-level buyers have been adding to the positives.

Lennar is benefiting from effective cost control and focus on making its homebuilding platform more efficient, which in turn is resulting in higher operating leverage.

NVR’s disciplined business model, and focus on maximizing liquidity and minimizing risks are likely to generate more returns for shareholders.