It’s been nearly a month since Kamala Harris and Tim Walz released their agenda to lower costs for American families. A big part of the plan involves helping improve housing affordability by increasing the supply of housing units.
Harris is pushing for the construction of three million housing units. To make that happen, she’s proposed four key initiatives: 1) A tax incentive for homebuilders that construct starter homes for first-time homebuyers, 2) An expansion of the existing tax incentive for businesses that build affordable rental housing, 3) A $40 billion innovation fund to support the building of innovative, affordable housing, and 4) Cut the red tape and bureaucracy involved with new home construction.
Not every homebuilder will be incentivized to join the Harris bandwagon. Some are strictly luxury home builders and wouldn’t qualify for these initiatives.
However, homebuilder stocks have generally done well since the announcement on August 16. The iShares U.S. Home Construction ETF (BATS:ITB), which tracks the performance of companies involved in home construction, is up around 4% in the month since.
Here are three homebuilder stocks to ride Harris’ homeownership plan.
24/7 Wall Street Insights
- D.R. Horton (DHI) might be America’s largest homebuilder, but its average home price is surprisingly affordable.
- Taylor Morrison (TMHC) has a much higher average selling price, but that’s only because of its diversification.
- LGI Homes (LGIH) has turned the corner on a forgetful 2023.
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D.R. Horton (DHI)
D.R. Horton (NYSE:DHI) is the largest of the three stocks with a market cap over $61 billion. It’s benefiting from the Federal Reserve’s move to cut interest rates in the final four months of 2024. Its stock is up 25% in 2024 with over a third of the gains in the past month.
Since the company built its first home in 1978, it has become the largest builder in America by volume with operations in 121 markets across 33 states. It has held this distinction since 2002.
You wouldn’t think a company of this size would focus on first-time home buyers, but you’d be wrong. It is building smaller homes to meet the demand for lower-cost housing.
In 2023, out of the 82,917 homes it sold, over two-thirds were sold for less than $400,000. According to data from the Federal Reserve Bank of St. Louis. The average price of houses sold in the U.S. was over $513,000
In late 2023, D.R. Horton acquired Texas-based ASGi Homes.
D.R. Horton is doing its part to help alleviate the housing shortage. Sometimes, doing good translates into doing well. The company’s houses in the Houston area are sold between $120,000 and $250,000, enabling first-time buyers to get an affordable home in an up-and-coming region of the country.
Sometimes, you can do well by doing good.
Taylor Morrison Home (TMHC)
Taylor Morrison Home (NYSE:TMHC) announced in December 2023 that it had closed its 100,000th home since becoming a publicly traded company in 2013. As part of the celebrations, the company gifted a first-time homebuyer in its Mason Woods Community with their first year’s principal and mortgage interest.
While that was a promotional stunt, the homebuilder focuses on the first-time homebuyer.
“Affordability is among the top factors home shoppers consider when buying a home in today’s mortgage rate environment. Through its subsidiary, Taylor Morrison Home Funding, Taylor Morrison offers personalized financing incentives such as rate locks, temporary or permanent rate buydowns, and closing cost assistance, which help customers overcome affordability challenges,” stated its December 2023 press release.
Earlier this year, TMHC CEO Sheryl Palmer said it targeted 12,000 house closings in 2024 and 13,200 in 2025. The company prides itself on the diversification of its offerings. In 2023, 34% of its closings were first-time homebuyers, 42% from move-up buyers, and 24% for lifestyle resort buyers.
It is so confident of the future that it introduced some new long-term quarterly goals in Q1 2024, including 10% or higher annual home closings growth, low-to-mid 20% home closings gross margins and mid-to-high teens returns on equity.
Its average price for homes sold is over $600,000. Despite selling a third of its homes to first-time homebuyers, It managed to hit that.
I like this company a lot.
LGI Homes (LGIH)
LGI Homes (NASDAQ:LGIH) is the smallest of the three homebuilder stocks with a $2.44 billion market cap. Its stock is down more than 20% year-to-date, trailing DHI and TMHC, which are up more than 20%.
Buy on the dip? I’m going to say yes. Here’s why.
LGI builds homes in 21 states including some of the biggest such as Texas, Florida, Georgia, and California. Since its launch 21 years ago, it’s built and sold more than 70,000 homes.
The company’s average sales price of its homes sold in the second quarter was $364,047, about $18,000 less than D.R. Horton and considerably less than Taylor Morrison. If anything says it’s focused on first-time homebuyers, that figure would be it.
Like most homebuilders, higher interest rates have dented home closings over the past few years. In 2021, LGI hit a record 10,442. That dropped to 6,621 in 2022 and 6,729 in 2023. It expects to close on 6,800 homes in 2024 at the midpoint of its guidance given in late July.
Based on its guidance, it should generate $2.48 billion in revenue in 2024 and a net profit of $213.7 million based on an effective tax rate of 24.5%. That’s a little over 7% higher than in 2023.
In the second quarter it repurchased $8 million of its stock at an average price of $95.51. I expect by the end of 2024, its return on investment will be even higher.
It looks as though 2003’s doldrums are behind it.
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