Best Homebuilder Stocks to Own Right Now

The U.S. real estate market, after an explosion of pandemic-related gains in the early part of this decade, has cooled considerably. Despite this, the stocks of many homebuilding companies are flying high.

There are many positives currently working in favor of the homebuilders. The price of lumber, which shot higher in the early days of the pandemic, has come down considerably. Since peaking in March 2022, lumber prices have fallen by over 63%.

Interest rates are about to drop in the U.S. While the Fed declined to cut rates on Wednesday, Chair Powell stated that the U.S. central bank could reduce its key interest rate at its September meeting. That meeting concludes on September 18, just six weeks from now.

According to the CME’s FedWatch Tool, the odds of a 25 basis point Fed rate cut by September 18 are currently 100%. The chance of a 50 basis point reduction in the Fed funds rate stands at 12%. 

There is also the issue of pent-up demand. According to the National Association of Realtors, as of June 2024, sales of existing homes were approaching their lowest levels in 10 years. Mortgage applications for the last week of July have fallen 13% year-over-year, and have declined by 50% from pre-pandemic levels. 

Many would-be buyers are on the sidelines, patiently waiting for lower mortgage rates. Those potential buyers may find themselves in a newly constructed home. 

The SPDR Homebuilders ETF XHB, a bellwether for the industry, traded at its all-time highest level on Wednesday. XHB breached $121 for the first time ever after the Fed’s announcement, before pulling back at the close. 

Here are some individual names in the homebuilding sector worth checking out:

D.R. Horton

Arlington, Texas-based D.R. Horton DHI exploded higher after a phenomenal earnings report on July 18. The company vaulted on extremely heavy volume after that report (arrow), which beat earnings estimates by 9.2% and revenue expectations by 3.67%. 

To appreciate DHI’s momentum, consider the following. The stock has gained over 20% this year — but it has climbed over 31% in the past month. A pullback to the low/mid $170s would create an ideal entry. 

GRADE: B+

K.B. Homes

On Wednesday, K.B. Homes KBH closed at its fourth consecutive all-time record high. The California-based homebuilder has gained 38.75% year-to-date

KBH’s 50-day (blue) and 200-day (red) moving averages demonstrate both trend and symmetry. In June, the company’s earnings came in 19% above expectations, while revenue beat estimates by 3.4%. 

RADE: B+

PulteGroup

Shares of Atlanta-based PulteGroup PHM closed at an all-time high on Monday, and repeated that feat on Tuesday. The company bested earnings and revenue estimates when it reported on July 23.

PulteGroup’s 50-day (blue) and 200-day moving averages are rising steadily. The stock is a bit extended, so a pullback to the $125 area would create an ideal entry point. 

GRADE: B

Bottom Line

While this group has seen tremendous gains recently, traders should approach with caution. The sector may be due for a pullback, so if you're initiating a position here, start small and keep some powder dry. 

At the time of publication, Ponsi was long DHI and KBH.