The housing industry is set to enter 2025 grappling with similar challenges as this year, such as fluctuations in mortgage rates, seasonal trade disappointments, and mounting inventories of new homes. According to Wedbush Securities, these factors will continue to affect the dynamics of the market. The second half of the year has seen significant volatility in mortgage rates, which has dampened demand across various buyer segments.
Homebuilding firms that target higher price brackets and clients looking to upgrade to larger residences are positioned with stronger demand compared to those focused on entry-level buyers, who are more sensitive to interest rate changes. This insight from Wedbush reflects a critical understanding of current market trends. For the iShares U.S.
Home Construction ETF, known as ITB, performance during the seasonal trading period has lagged by a striking 1,500 to 2,000 basis points, depending on purchase timing. Analysts from Wedbush suggest that this underperformance may improve if mortgage rate fluctuations stabilize. Wedbush emphasizes that stability in rates is essential as it allows potential buyers to accurately plan for monthly payments and down payments required for purchasing new homes.
Analysts Jay McCanless and Brian Violino stress the importance of rate consistency in fostering demand. In terms of specific investment opportunities, Wedbush maintains a bullish outlook on Zillow ($Z), anticipating that the online real estate marketplace will capitalize on an expanding selection of new and existing homes up for sale.
The report also highlights the positive impact of ongoing multi-family construction completions, which will contribute to a consistent stream of renters. The increase in new home inventories presents additional challenges for sales and pricing power among homebuilders covered by Wedbush. Analysts note that the rising inventory might reflect an oversupply situation, where many builders are competing for a limited pool of entry-level buyers faced with credit restrictions and affordability issues. In December, the National Association of Realtors revealed that U.S.
housing inventory, as of the end of November, reached approximately 1.33 million units, marking an increase of about 18% from the previous year. This growth in local market inventories has consistently outpaced national existing home data for eleven consecutive months, according to Wedbush's analysis. Wedbush has reaffirmed 'outperform' ratings for M/I Homes ($MHO), Toll Brothers ($TOL), Beazer Homes USA ($BZH), and Taylor Morrison Home ($TMHC).
Furthermore, the brokerage identifies Mr. Cooper ($COOP), PennyMac Financial ($PFSI), and Rithm Capital ($RITM) as compelling investment opportunities given the current landscape of rising mortgage rates..