Home Prices Keep Rising. Housing Stocks Have Had a Terrible Year. -- Barrons.com

By Ben Levisohn

October's S&P CoreLogic Case-Shiller National Home Price Index showed housing prices rising again from the previous year -- but housing stocks are having a year to forget.

The Case-Shiller index rose 3.6% from the previous year, even as it fell 0.18% month over month. Prices have increased 4.25% this year through October.

Despite rising home prices in 2024, home builder stocks have drastically underperformed the stock market. The SPDR S&P Homebuilders ETF has risen 9.8% in 2024, while the iShares U.S. Home Construction ETF has advanced just 2.2%. The S&P 500 has gained 24%.

Individual housing stocks have also lagged behind the overall stock market. KB Home has risen just 6.1%, DR Horton, a Barron's stock pick, has declined 7.1%, and Lennar has dropped 7.9%. Toll Brothers, which caters to higher-end buyers, has risen 23%.

Rising house prices are better for home builders, but they can also make it too expensive for people to buy a new house. That's particularly a problem when bond yields, which are closely linked to mortgage rates, are rising as well. The 10-year yield now up 0.194 percentage point to 4.578% since the Federal Reserve conducted its hawkish cut on Dec. 18, and mortgage rates have risen to 6.85%, the highest since July, after falling as low as 6.08% on Sept. 26. Against that backdrop, it's no wonder that housing stocks have gotten hit, with the iShares US Home Construction ETF falling 6.5% since then.

That leaves housing stocks in a tough spot. 22V's Dennis DeBusschere notes that housing activity, which is already sluggish, should likely remain fairly constant due to the difficulty in getting permits and a market where there simply aren't enough houses for sale. "Housing is arguably hemmed in from both sides for now," he writes. "It won't get much worse, but higher rates will prevent activity from improving."

The one thing that could change the equilibrium would be an economic slowdown. That would bring mortgage rates down, but when they are falling because the 10-year yield is lower on economic worries, no amount of cheaper home loans will spur people to buy a new home.

For now, the housing market remains in the state of limbo it has been in for much of the year -- and no amount of price increases will change that.

Write to Ben Levisohn at ben.levisohn@barrons.com

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December 31, 2024 12:32 ET (17:32 GMT)

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