Wall Street sees a solid year ahead for homebuilders

LOS ANGELES — Housing market trends are shaping up in favor of a solid 2024 for U.S. homebuilders — as long as mortgage rates don’t jump back to the highs they hit late last year.

Sales of new homes rose nationally in 2023 for the first time in two years, climbing 4.2% from a year earlier, according to the Commerce Department.

This bucked the trajectory of the broader housing market, which remained mired in a deep slump as sales of previously occupied U.S. homes sank roughly 19% to a nearly 30-year low.

Homebuilders were able to mitigate the impact of higher interest rates on home shoppers by lowering prices and offering incentives like paying buyers’ closing costs or buying down the rate on their mortgage.

They also benefited from a chronically low inventory of existing homes on the market.

Those market trends are expected to help give homebuilders a leg up again this year, Wall Street analysts say.

Moody’s Investors Service projects that new U.S. home sales will increase 5% in 2024, citing strong demand among millennials and a healthy job market.

The new-home market’s “healthy fundamentals should result in a solid year for U.S. homebuilders,” the Moody’s analysts wrote in the report released this week.

Underpinning much of the optimism are expectations that mortgage rates will continue to decline this year.

Moody’s forecasts that the average rate on a 30year fixed mortgage will drop to 6.4% by the fourth quarter. Forecasts by several housing economists see the average rate declining this year, though generally no lower than 6%.

The average rate on a 30-year mortgage has eased since reaching a 23year high of 7.79% in late October.