We recently published a list of 10 Best Residential Real Estate Stocks To Buy. In this article, we are going to take a look at where D.R. Horton, Inc. (NYSE:DHI) stands against other best residential real estate stocks to buy.
Home Buyers Have More Bargaining Power than Sellers, Says Economist
The rate hikes which started in March 2022 as a battle against inflation are coming to an end as the Federal Reserve finally decided to cut rates for the first time since 2020. The rate cuts were kicked off with a half-percentage point reduction on September 18. This long-awaited move lowered rates to about 4.875%, at the midpoint. With an optimistic view in mind about inflation cooling off, the big rate cut will be catering to the employment slowdown. The news just doesn’t end here since the officials have pointed to another half-point reduction before the year’s end.
For the housing market, the big rate cut could be taken as a signal from the Fed to reverse the mortgage lock-in effect but the extent of easing matters. While an aggressive reduction in rates will reduce financing costs, create an inventory of existing homes, and reduce pressure on home prices, a gradual reduction won’t be of much value for the homeowners who are holding on to their early-pandemic low mortgage rates. The anticipation of a rate cut at the September Fed meeting has brought down mortgage rates to as low as their lowest since February 2023. However, the dropping mortgage rates are a double-edged sword as they could potentially raise the demand so much thereby making home buying even harder.
In an interview with CNBC, Senior Economist Orphe Divounguy from Zillow emphasized the impact of rate cuts on housing affordability. Although affordability remains a challenge, the market is improving. In his opinion, the best time to act for home buyers is right now as the current scenario offers them a perfect entry point with more options and bargaining power being somewhat shifted from the sellers to the buyers. The number of active listings on the real estate platform has gone up by 22% since last year. Although short-term rates are expected to decline, longer-term rates like mortgage rates could remain at the current level. He expects more buyers than sellers in the market with improving affordability. Sellers will also be in good shape as well-priced and well-marketed homes are selling in just 20 days, according to company data.
With that being said, let’s move to the 10 best residential real estate stocks to buy.
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A construction site of a multi-family residential complex, a modern urban skyline in the background.
D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Holders: 62
D.R. Horton, Inc. (NYSE:DHI) is an American home builder selling homes in 113 markets across 33 states in the country. Other than homebuilding, it offers other services such as mortgage, title, and insurance. D.R. Horton has Express Series for first-time homebuyers, Emerald Series for high-end homes, and Freedom Series for easy living and low maintenance. For those who cannot own a home, the company offers rental communities.
D.R. Horton, Inc. (NYSE:DHI) has been America’s largest home builder by volume since 2002 which makes it a market leader. On September 30, 2023, the home builder was found to be the largest builder in 3 of the top 5 US housing markets and in 52 of the 118 markets in which it operated. During the trailing twelve months ended June 30, the firm closed 94,255 homes. The firm’s diverse product offerings and price points in the current market also offer a competitive advantage.
During the fiscal third quarter, the firm recorded earnings per share of $4.10, up 5% year-over-year. Home sales revenues of $9.2 billion were secured on 24,155 homes closed in the quarter. With affordable offerings and flexible lot supply in a housing market that is a victim of decades of underbuilding, D.R. Horton, Inc. (NYSE:DHI) is well-positioned to grow and perform well.
The firm is in a strategic relationship with Forestar, a public residential lot development company that is a majority-owned subsidiary of D.R. Horton. In the third quarter, $270 million of the finished lots the firm purchased were from Forestar. Forestar’s robust balance sheet and ample lot supply position them well enough to capitalize on the shortage of finished lots in the homebuilding market.
Based on clear market dominance, robust financials, and demographics supporting housing demand, DHI ranks among the 10 best residential real estate stocks to buy. The stock was held by 62 hedge funds, as of Q2 2024. Greenhaven Associates was the largest shareholder in the company.
Overall, DHI ranks 1st on our list of 10 best residential real estate stocks to buy. While we acknowledge the potential of DHI as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than DHI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.