Homebuilder Stocks Soar Following Positive Market Data: What You Need To Know

Homebuilder sentiment increased in January for the first time in a year after declining for 12 straight months, triggering a rally in homebuilder stocks.

What Happened: Recent data issued by the National Association of Homebuilders (NAHB) showed its national Housing Market Index (HMI) rose moderately from a December low of 31 to a more-encouraging 35.

The HMI can range between zero and 100.

Homebuilder stocks such as Toll Brothers Inc TOL, Meritage Homes Corp MTH, Lennar Corp LEN, PulteGroup, Inc. PHM, and D R Horton Inc DHI are up as much as 13.38% since the year began.

In December, there were hopes that the HMI had bottomed, as the rate of decline slowed even though sentiment was still going down. Fortunately, this prediction was accurate.

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Why is positive sentiment beginning to return to homebuilders?

Mortgage interest rates have fallen from the highs seen in October, and even more since the year began, allowing more potential buyers to enter the market.

“It appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” said NAHB Chairman Jerry Konter.

“The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023l,” he added.

A sharp rebound in home-building activity could potentially benefit Opendoor Technologies Inc OPEN, as it is a digital platform for residential real estate, facilitating the buying and selling of homes.

With more homebuilding activity, coupled with descending interest rates, there will likely be increased demand for home buying and selling services, which could benefit Opendoor.

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