Key Takeaways
- Many homeowners have sub-4% rates, freezing the existing home market.
- The Trump Administration plans to spur the construction of 1 million new homes.
- Leading homebuilders are expected to return to double-digit EPS growth.
Many investors gave up on housing stocks after 30-year fixed mortgage rates jumped from the rock bottom low of under 3% in 2021 to nearly 8% at the peak in 2023. However, several housing stocks, particularly homebuilders, are turning the corner and are poised to thrive in 2026. Below are five reasons to be bullish on homebuilders in 2026:
The U.S. Housing Supply is Restricted
The U.S housing market has faced supply challenges for a handful of years. Following the devastation of the 2008 Global Financial Crisis and housing meltdown, homebuilders have been underbuilding out of an abundance of caution. Meanwhile, over the past decade, private-equity giants, most notably Blackstone ((BLK – Free Report) ), have scooped up hundreds of thousands of single-family homes and apartment complexes, worsening the housing supply crisis. According to data from the Federal Bank of St. Louis, the monthly supply of new houses in the United States is at the lowest level since September 2024.
Image Source: FRED
Existing Homeowners with Low Mortgage Rates are Staying Put
The COVID and post-COVID economic stimulus and low-rate environment led to a housing boom in the United States. With mortgage rates currently around 6%, roughly half of U.S homeowners have a mortgage rate below 4%. This dispersion has essentially frozen the market for existing home sales and caused a ‘Golden Handcuff’ phenomenon. In other words, new home seekers will likely need to rely on new construction to fill the void.
Image Source: FRED
Mortgage Rates Are Likely to Decline in 2026
Most Wall Street analysts expect mortgage rates to decline gradually in 2026. A scenario where rates decline only moderately may cause a perfect storm for homebuilders as demand increases, but rates stay high enough so that existing homeowners with low rates are not motivated to move.
Washington Works to Increase U.S. Housing Supply
The Trump Administration has proposed increasing the supply of homes in the United States. The bipartisan-supported plan aims to construct 1 million entry-level homes. Additionally, Fannie Mae ((FNMA – Free Report) ) and Freddie Mac will purchase $200 billion in mortgage-backed securities to reduce interest rates.
Homebuilders Sport Robust Estimates & Improving Technicals
After reporting several negative EPS quarters, Wall Street analysts expect homebuilders such as DR Horton ((DHI – Free Report) ) and Lennar ((LEN – Free Report) ) to return to double-digit EPS growth by next year.
Image Source: Zacks Investment Research
Meanwhile, the price action and relative strength among homebuilders is undeniable. For example, Toll Brothers ((TOL – Free Report) ) shares have already climbed a robust 19% year-to-date.
Bottom Line
While the rock-bottom mortgage rates of the early 2020s are a distant memory, the current landscape has created a unique structural advantage for homebuilders. By bridging the gap between a massive supply deficit and a renewed federal push for affordability, homebuilders are in play.
