At a time when mortgage loan rates have soared to their highest levels since 2000, it might surprise you that some analysts think this is a good time to buy shares of large home builders. But there are a number of good reasons for long-term investors to consider buying home builders’ stocks now, as outlined by Oppenheimer & Co. analysts Tyler Batory and Jonathan Jenkins in a note to clients on Thursday.
3 reasons to consider home builders’ stocks now1. High mortgage rates have increased demand for newly constructed homes. The national average rate for a 30-year mortgage loan was about 7.7% last week, increasing from about 7.5% the previous week, according to the Mortgage Bankers Association. 2. Despite slowing industry growth, home builders’ stocks have risen this year and remain at low valuations to expected profits. The S&P Composite 1500 Homebuilding industry group — the 17 stocks in the index weighted by market capitalization — has returned 36.2% this year with dividends reinvested, compared with a 14.4% return for the full S&P Composite 1500 and a 15.5% return for the S&P 500.
It is interesting to see that despite being in a new environment, with high interest rates stifling the housing market as a whole and tempting some investors away from stocks, the home builders have held up better than the broad market.