Following his attendance at the US Senate Banking, Housing, and Urban Affairs Committee hearing on July 9th Eastern Time, Federal Reserve Chairman Jerome Powell announced that the US...$Residential Construction (LIST2005.US)$The sector has started a continuous upward rebound trend. As of the closing on July 22nd Eastern Time, it has accumulated a gain of over 20%.
Powell stated at the hearing that too little or too late interest rate cuts could pose risks to the economy and labor market. High inflation is not the only risk we face. Late or insufficient reduction of policy restrictions may overly weaken economic activity. Regarding the US real estate market, Powell said, "Tightening policies have affected activities in the real estate industry."
The next day, the release of June US CPI showed that the year-on-year growth rate of US CPI slowed from 3.3% to 3%, and the core CPI dropped from 3.4% to 3.3%, both lower than expected, including a significant slowdown in the growth rate of housing costs.
At the same time, the market's expectation for a September rate cut by the Fed has risen sharply, with the number of expected rate cuts this year expected to increase to 2-3 times.
Analysts believe that as the market becomes increasingly confident that the Fed will soon lower interest rates, the stock prices of home builders are gradually rising. Cheaper financing costs will benefit builders' profit margins and attract more buyers to participate.
As of the close of July 22 Eastern Time, in nearly 10 trading days, one of the three major real estate companies in the United States,$D.R. Horton (DHI.US)$more than 30%, respectively. $Meritage Homes (MTH.US)$,$Taylor Morrison Home (TMHC.US)$,$Toll Brothers (TOL.US)$,$KB Home (KBH.US)$,$Lennar Corp (LEN.US)$rose more than 20%,$Installed Building Products (IBP.US)$,$PulteGroup (PHM.US)$rose nearly 20%,$NVR Inc (NVR.US)$rose nearly 16%. It is worth noting that except for Installed Building Products and Toll Brothers, all other stocks in the sector have reached a historical high within this range.
With the expectation of a rate cut, how do we view the opportunities in the US real estate market?
Previously, Jan Hatzius, chief economist at Goldman Sachs, believed that the US real estate market may be in a stage of "two steps forward, one step back." Although residential fixed investment rebounded strongly in the first quarter, with a year-on-year increase of up to 15%, the rebound of mortgage interest rates has brought resistance to this industry that is most sensitive to interest rates. In addition, the still high mortgage interest rates mean that builders need to pay more funds to provide low-interest loans, attracting potential buyers to purchase or increase sales through other incentive measures.
Currently, with housing inflation easing, it will significantly ease household economic pressure. At the same time, the rising expectation of a rate cut may stimulate real estate stocks to strengthen since the rate cut reduces borrowing costs and is expected to boost housing demand and the market.
During this period, in order to promote sales, the housing construction industry still generally offers discounts and price reductions. According to a July survey by the National Association of Home Builders, 31% of home construction companies reported that they have lowered house prices to increase sales, higher than 29% in June. Regarding incentive measures, such as mortgage rate subsidies, more than 60% of builders said they provide such incentive measures.
On the other hand, David Auld, President and CEO of D.R. Horton, stated in a statement, "Although inflation and mortgage interest rates are still high, affordable new and existing home supplies are still limited, and the demographic data supporting housing demand are still favorable, although economic power remains challenged, demand for home buyers during the spring sales season is good."
Currently, in order to promote sales, the housing construction industry is still generally offering discounts and price cuts. According to a survey by the National Association of Home Builders in July, 31% of housing construction companies said they had lowered prices to boost sales, up from 29% in June. In incentive measures, such as mortgage rate subsidies, over 60% of builders said they provide such measures.
On the other hand, D.R. Horton's CEO, David Auld, said in a statement, "Despite high inflation and mortgage rates, affordable new and existing home supplies were still limited, and demographic data supporting housing demand remained favorable. Although there are still challenges in economic strength, demand from homebuyers in the spring sales season is strong."
According to the latest financial report of D.R. Horton, the number of sold houses increased by 5.1% to 24,155, while the value of sold houses increased by 6.1% to $9.23 billion, with an average price of $0.38 million per sold house. This result is higher than the FactSet consensus forecast of 22,256 sold houses and an average selling price of $0.37 million per house.
In addition, according to the authoritative data recently released by the Zillow housing value index, house prices throughout the country have significantly increased by 45% compared to March 2020. The speed of the rise is comparable to the cumulative increase in recent decades, highlighting the strong recovery and growth potential of the real estate market.
According to ResiClub's tracking of the 10 largest publicly listed homebuilders, they recorded a total of 77,255 net new home orders in the first quarter of 2024, an increase of 18% year-on-year.
Finally, political strategist Katrina Odačenko, who holds a real estate license in Maryland, said: "If Trump is re-elected, the real estate market may be affected. During his first term, Trump was committed to increasing homeownership, extending eviction bans during the pandemic, and proposing the privatization of Fannie Mae and Freddie Mac."
Recently, several economists analyzed the effects of Trump winning the election and said that the real estate market may benefit. Among them, Marty Harlee, President and CEO of First REIT Financial Corporation, said, "If Trump wins the upcoming election, we will see another large-scale refinancing trend and record-breaking home sales. Lower interest rates will also push all industries to develop upwards."
Editor/ping