How Will DR Horton & Its Peers Handle A Weakening Housing Market?

Core Viewpoint - The U.S. housing market is experiencing a cooling trend after significant gains during the Covid pandemic, impacting home builders and related stocks, which have shown mixed performance year-to-date compared to the S&P 500 [1][2]. Housing Market Overview - The "lock-in" effect has reduced the supply of existing homes, as homeowners with lower mortgage rates are less likely to sell, leading to decreased overall demand for new homes [2]. - In June, new single-family home sales fell 0.6% to 617,000 units, marking a seven-month low, with a year-over-year decline of 7.4%. The average price for new homes remained stable at $417,300 [3]. - The average 30-year fixed mortgage rate is currently about 6.8$70 in early January 2021 to approximately 175, outperforming the S&P 500, which increased by about 45% during the same period [4]. - DHI's stock returns were 57% in 2021, -18% in 2022, and 70% in 2023, consistently beating the S&P 500's performance [4]. - D.R. Horton reported Q3 FY'24 earnings of 4.10 per share, a 5% increase from the previous year, and announced a new $4 billion share-repurchase program [5]. Future Outlook - Despite the uncertain macroeconomic environment, there is a fundamental under-supply of homes in the U.S., which may provide good demand visibility for major housing players [5]. - The Federal Reserve is contemplating an interest rate cut this year, which could lower mortgage rates and stimulate demand for housing [5]. - Easing supply chain constraints and price corrections for construction materials may also benefit home builders [5].