The housing market may be on the precipice of a major recovery, at least according to PulteGroup (NYSE:PHM). Indeed, on its Tuesday earnings call, the homebuilder stated that it experienced a rapid jump in homebuying activity near the end of last year.
What does this mean for the housing market this year? Well, common sense would say that it’s a bullish indicator for the volatile industry.
Housing has been in something of a weird place for the past year or two. As a result of elevated mortgage rates and seemingly perpetually rising home prices, housing affordability has been at historic lows for much of the past year.
Last August, the National Association of Realtors’ (NAR) Housing Affordability Index fell to its lowest level ever: 91.7. For context, an index rating below 100 indicates that a median-income family cannot afford a home under typical mortgage conditions.
But with Federal Reserve Chair Jerome Powell hinting at three or more rate cuts to come in 2024, mortgage rates have fallen since November to below 7%. This likely explains PulteGroup’s recent jump in homebuying activity; a new swathe of hopeful homebuyers entered the market as mortgage rates dropped from recent highs.
According to PulteGroup CEO Ryan Marshall, this has set the stage for something of a housing market revival in 2024.
“After multiple years of variable macroeconomic activity, expectations are that 2024 can be a year of increased homebuying demand given a strong job market, lower interest rates and a limited inventory of existing homes,” said Marshall.
Housing Market In-Focus Ahead of Fed Policy Meeting
The housing market has stolen the limelight ahead of the central bank’s first Federal Open Market Committee (FOMC) meeting of the year, set for Jan. 30 to Jan. 31.
Indeed, the future of the housing market largely depends on the central bank. While it’s unlikely the Fed moves to lower rates this month, many economists have predicted that the first rate cut may come as early as March.
Should this happen, housing may undergo some notable changes. Some economists believe mortgage rates are the primary barrier to the unleashing of a substantial inventory of homes.
The idea is that there’s a pent-up supply of pandemic-era homebuyers who wish to sell their homes but don’t want to endure record-high mortgage rates on a new property. This has fueled the housing shortage that has plagued the market over the past few years.
As rates fall to acceptable levels, these homeowners may be enticed to finally put their homes on the market, easing some of the supply tensions in the industry.
Pulte isn’t the only homebuilder to have noticed a sharp uptick in homebuying activity, either. D.R. Horton (NYSE:DHI), the country’s largest homebuilder, reported a 35% jump year-over-year (YOY) in net sales orders in Q4 2023. That’s likely a further reflection of changing conditions in housing.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
