Is Homebuyer Optimism Good News For These Dividend Stocks?

There may be some optimism about the housing market right now, but will it last? 

Ask anyone about the state of real estate these days, and you might see some rolled eyes, especially among prospective homeowners. With mortgage rates hovering around 7%, many people feel that the time isn't right to buy a home. Despite the fact that existing home sales dropped nearly 3% in May, prices rose by nearly 6%, suggesting that even though volume is low, sellers feel they can get top dollar. 

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Despite these challenges, there are signs of optimism among homebuyers, which could potentially benefit real estate investors. Each month, The Federal National Mortgage Association, also known as Fannie Mae, releases an index of homebuyer sentiment. June showed that 19% of homebuyers thought now was a good time to buy a home, up from 14% in May. High prices and low inventory have encouraged those considering a sale. A total of 66% of those surveyed said it was a good time to sell, up 2% from the previous month. However, people still felt that prices and mortgage rates might not be coming down anytime soon. 

This trend may indicate an overall confidence in the economy. Inflation has been persistent, but there are signs that it is cooling, making people feel better about their prospects. While unemployment has risen slightly, the job market remains robust. 

Increasing the availability of homes for purchase could significantly impact the real estate market. Reviewing the results, Mark Palim, Fannie Mae vice president and deputy chief economist, pointed out that while a mortgage rate drop could help boost home sales, "progress on that front is likely to be slow due to the ongoing imbalance between supply and demand."

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Good News For Homebuilder Stocks?

Home inventory has remained below the historical norm for a balanced market, traditionally a six-month supply of homes. If there are fewer homes for sale, prices tend to rise, which is considered a seller's market. In the current market, inventory has hovered around three months. This strained supply has led to an opportunity for homebuilders and boosted many homebuilder stocks. A recent analysis showed that in 2023, all 10 homebuilder stocks outperformed the S&P 500. 

While homebuilders must struggle with margins and keeping homes affordable, a low supply of existing houses has been good for business. One of the country's largest homebuilders, Lennar, recently reported that home sales were up 19% to 21,293 for its second quarter, and deliveries were up by 15%. While this company's stock only has a dividend yield of 1.4%, the growth in the stock price has been steady, up 15% for the year. A smaller builder in the space, KB Home KBH, reported that deliveries were only up 2%, but the net value of its orders was up 7% as it was able to raise prices in some areas. KB Home stock has been up 30% in the past year and has a 1.5% dividend yield. 

Homebuilders are watching the consumer sentiment numbers to see what may be ahead. While each home seller may only be worried about the price of their home and trying to time their sale for the best value, homebuilders must consider multiple markets as well as the overall tenor of the economy. As the Fannie Mae report shows, much will hinge on mortgage rates falling within the next six months. 

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