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Fed Sees Three Rate Cuts in 2024: 4 Homebuilding Stocks to Watch
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The housing market is finally catching a break. The recent decision by the Federal Reserve to keep key interest rates steady is a positive signal for the homebuilding sector, offering a breath of fresh air amid economic uncertainties. With the inflation rate showing signs of easing and the economy holding its ground, the Federal Open Market Committee's unanimous vote to maintain the benchmark in a targeted range between 5.25% and 5.5% provides stability for homebuilders.
Policymakers on the Federal Open Market Committee, anticipating further economic developments, have not only decided to hold the current interest rates but have also hinted at potential rate cuts in the coming year. The committee members expect at least three rate cuts in 2024.
The committee's graphical representation of individual members' expectations, known as the "dot plot," suggests an anticipated four additional rate cuts in 2025. Further, three more reductions projected for 2026 would potentially lower the fed funds rate to a range of 2%-2.25%, approaching the long-term outlook and providing a more optimistic outlook for the housing market compared to earlier indications.
These advancements unfold against an improving backdrop of the inflation scenario. The Consumer Price Index, a key indicator, rose 0.1% in November, and was up 3.1% from a year ago, the Labor Department reported on Dec 12. Fed officials project a gradual decline in core inflation over the next few years, reaching the 2% target by 2026. This paints a brighter picture of the overall economic landscape and, in particular, the housing market.
How Builders Are Playing the Market
Homebuilders have been quick to adapt to the evolving market conditions. One significant strategy employed by many is offering mortgage rate buydowns, where builders cover upfront costs to lower loan rates. This approach not only attracts potential buyers but also aligns with the current low-rate environment, further fueling the demand for new homes.
Meanwhile, large public homebuilders, benefiting from their scale and capital advantages, continue to thrive, particularly in entry-level price points and urban fringe markets. The ability to build spec houses, even in the absence of a confirmed buyer, underscores the resilience of these industry giants.
Despite the challenges posed by high labor and land costs, homebuilders remain optimistic about expansion. Toll Brothers, Inc. (TOL - Free Report) , a leading player in the market, has outlined plans to grow its communities by approximately 10% in 2024. The aim is to be well-prepared with inventory when a potential drop in rates coincides with the spring selling season, showcasing strategic foresight amid market fluctuations.
2024: A Promising Horizon for Housing Market
As we look ahead to 2024, the housing market stands on a more solid foundation, supported by the Federal Reserve's decision to maintain interest rates and its optimistic outlook on economic indicators. Homebuilders, armed with strategic moves and a keen eye on market dynamics, are poised to navigate challenges and capitalize on emerging opportunities, creating a promising horizon for the industry in the coming year.
Various homebuilding companies have been registering gains from the positive momentum of the industry. Notable among them are Dream Finders Homes, Inc. (DFH - Free Report) , Lennar Corporation (LEN - Free Report) , Toll Brothers and D.R. Horton (DHI - Free Report) .
Key Homebuilding Stocks
Investors’ decision to keep a close eye on some homebuilding stocks seems to be a judicious move at this point, given solid demand and an improving macro scenario.
Dream Finders Homes: This Jacksonville, FL-based company’s land-light operating model and strategic position in high-growth markets, providing affordable homes to entry-level, first and second-time move-up homebuyers, are tailwinds. Also, the build-for-rent platform provides a consistent home deliveries pipeline, which is less susceptible to temporary changes in demand from individual homebuyers.
DFH — a Zacks Rank #2 (Buy) stock — has rallied 186.9% in the past year, outperforming the Zacks Building Products - Home Builders industry’s 65.2% jump. The Zacks Consensus Estimate for its 2024 earnings has been upwardly revised to $2.62 from $2.61 over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed in one, the average being 131.6%.
Lennar: Based in Miami, FL, Lennar is engaged in homebuilding and financial services in the United States. The company is reaping the rewards of its digital marketing efforts and a flexible pricing approach. Additionally, its strategy of minimizing land holdings and implementing efficient cost-saving methods has been advantageous.
LEN — a Zacks Rank #2 stock — has gained 59.9% in the past year. Earnings estimates for fiscal 2024 have increased to $14.89 per share from $14.65 over the past seven days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 19.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Toll Brothers: This Fort Washington, PA-based homebuilder has been riding high, given strong market demand, combined with its policy of boosting its supply of spec homes and focus on operational efficiency. Also, the emphasis on affordable luxury communities and its build-to-order model bodes well.
TOL currently carries a Zacks Rank #3 (Hold). Shares of the company have rallied 91% in the past year. Earnings estimates for fiscal 2024 have increased to $12.13 per share from $12.09 over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 29.4%.
D.R. Horton: Based in Texas, this homebuilder enjoys one of the broadest geographic diversities in the industry and is not dependent on any particular market. With 82,917 homes closed during the 12 months ended Sep 30, 2023, D.R. Horton has positioned itself as one of the largest homebuilders in the United States.
D.R. Horton — a Zacks Rank #3 stock — has jumped 64.8% in the past year. DHI has seen an upward estimate revision for fiscal 2024 EPS to $14.18 from $14.02, over the past 60 days. Its earnings topped consensus estimates in all the trailing four quarters, with the average surprise being 28.9%. Again, it carries an impressive VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.
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Fed Sees Three Rate Cuts in 2024: 4 Homebuilding Stocks to Watch
The housing market is finally catching a break. The recent decision by the Federal Reserve to keep key interest rates steady is a positive signal for the homebuilding sector, offering a breath of fresh air amid economic uncertainties. With the inflation rate showing signs of easing and the economy holding its ground, the Federal Open Market Committee's unanimous vote to maintain the benchmark in a targeted range between 5.25% and 5.5% provides stability for homebuilders.
Policymakers on the Federal Open Market Committee, anticipating further economic developments, have not only decided to hold the current interest rates but have also hinted at potential rate cuts in the coming year. The committee members expect at least three rate cuts in 2024.
The committee's graphical representation of individual members' expectations, known as the "dot plot," suggests an anticipated four additional rate cuts in 2025. Further, three more reductions projected for 2026 would potentially lower the fed funds rate to a range of 2%-2.25%, approaching the long-term outlook and providing a more optimistic outlook for the housing market compared to earlier indications.
These advancements unfold against an improving backdrop of the inflation scenario. The Consumer Price Index, a key indicator, rose 0.1% in November, and was up 3.1% from a year ago, the Labor Department reported on Dec 12. Fed officials project a gradual decline in core inflation over the next few years, reaching the 2% target by 2026. This paints a brighter picture of the overall economic landscape and, in particular, the housing market.
How Builders Are Playing the Market
Homebuilders have been quick to adapt to the evolving market conditions. One significant strategy employed by many is offering mortgage rate buydowns, where builders cover upfront costs to lower loan rates. This approach not only attracts potential buyers but also aligns with the current low-rate environment, further fueling the demand for new homes.
Meanwhile, large public homebuilders, benefiting from their scale and capital advantages, continue to thrive, particularly in entry-level price points and urban fringe markets. The ability to build spec houses, even in the absence of a confirmed buyer, underscores the resilience of these industry giants.
Despite the challenges posed by high labor and land costs, homebuilders remain optimistic about expansion. Toll Brothers, Inc. (TOL - Free Report) , a leading player in the market, has outlined plans to grow its communities by approximately 10% in 2024. The aim is to be well-prepared with inventory when a potential drop in rates coincides with the spring selling season, showcasing strategic foresight amid market fluctuations.
2024: A Promising Horizon for Housing Market
As we look ahead to 2024, the housing market stands on a more solid foundation, supported by the Federal Reserve's decision to maintain interest rates and its optimistic outlook on economic indicators. Homebuilders, armed with strategic moves and a keen eye on market dynamics, are poised to navigate challenges and capitalize on emerging opportunities, creating a promising horizon for the industry in the coming year.
Various homebuilding companies have been registering gains from the positive momentum of the industry. Notable among them are Dream Finders Homes, Inc. (DFH - Free Report) , Lennar Corporation (LEN - Free Report) , Toll Brothers and D.R. Horton (DHI - Free Report) .
Key Homebuilding Stocks
Investors’ decision to keep a close eye on some homebuilding stocks seems to be a judicious move at this point, given solid demand and an improving macro scenario.
Dream Finders Homes: This Jacksonville, FL-based company’s land-light operating model and strategic position in high-growth markets, providing affordable homes to entry-level, first and second-time move-up homebuyers, are tailwinds. Also, the build-for-rent platform provides a consistent home deliveries pipeline, which is less susceptible to temporary changes in demand from individual homebuyers.
DFH — a Zacks Rank #2 (Buy) stock — has rallied 186.9% in the past year, outperforming the Zacks Building Products - Home Builders industry’s 65.2% jump. The Zacks Consensus Estimate for its 2024 earnings has been upwardly revised to $2.62 from $2.61 over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed in one, the average being 131.6%.
Lennar: Based in Miami, FL, Lennar is engaged in homebuilding and financial services in the United States. The company is reaping the rewards of its digital marketing efforts and a flexible pricing approach. Additionally, its strategy of minimizing land holdings and implementing efficient cost-saving methods has been advantageous.
LEN — a Zacks Rank #2 stock — has gained 59.9% in the past year. Earnings estimates for fiscal 2024 have increased to $14.89 per share from $14.65 over the past seven days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 19.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Toll Brothers: This Fort Washington, PA-based homebuilder has been riding high, given strong market demand, combined with its policy of boosting its supply of spec homes and focus on operational efficiency. Also, the emphasis on affordable luxury communities and its build-to-order model bodes well.
TOL currently carries a Zacks Rank #3 (Hold). Shares of the company have rallied 91% in the past year. Earnings estimates for fiscal 2024 have increased to $12.13 per share from $12.09 over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 29.4%.
D.R. Horton: Based in Texas, this homebuilder enjoys one of the broadest geographic diversities in the industry and is not dependent on any particular market. With 82,917 homes closed during the 12 months ended Sep 30, 2023, D.R. Horton has positioned itself as one of the largest homebuilders in the United States.
D.R. Horton — a Zacks Rank #3 stock — has jumped 64.8% in the past year. DHI has seen an upward estimate revision for fiscal 2024 EPS to $14.18 from $14.02, over the past 60 days. Its earnings topped consensus estimates in all the trailing four quarters, with the average surprise being 28.9%. Again, it carries an impressive VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.