What Does 2023 Hold For The U.S. Housing Market?

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D.R. Horton

The housing market had a difficult 2022 on account of rising mortgage rates and high inflation. Our theme of Housing Stocks, which includes the stocks of home builders, building products companies, and home improvement players, declined by about 28% over 2022, underperforming the S&P 500 which declined by about 20% over the same period.

The average rate on 30-year fixed mortgages stands at about 6.4% presently, up from levels of just about 3.1% at the beginning of 2022, making financing home purchases more expensive. Housing has also become increasingly unaffordable, impacting volumes. The median price of new homes in the U.S. stood at $471,200 in November, marking an increase of about 10% versus the last year. In November, new home sales fell 15% year-over-year to 640,000 units. This, in turn, is also putting pressure on new projects. Housing starts for single-family homes fell 4.1% to a seasonally adjusted annual rate of 828,000 units in November, marking the lowest levels since May 2020.

So what’s the outlook like for the housing space? There are mounting concerns that the U.S. could head into a recession in 2023 largely due to the Fed’s continued interest rate hikes. That said, while the recent trends have been weak, we don’t think that the housing market will see a 2008-style crash. Housing inventory still remains constrained, standing at 1.14 million units as of November, down from levels of over 1.4 million units prior to Covid-19. Inflation has also eased a bit in recent months, with the November number coming in at 7.11%, compared to 7.75% in October and 8.2% in September. As the economy eventually picks up and housing prices ease a bit, we could see a strong rebound in the housing market helping home builder stocks. Within our theme, Floor and Decor Holdings (NYSE:FND) has been the weakest-performing stock declining by about 43% over 2022. On the other side, DR Horton (NYSE:DHI) has fared a bit better than the other names in the theme, with its stock falling by about 11% over the past year.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Jan 2023
MTD [1]
YTD [1]
Total [2]
 DRH Return -2% -2% -30%
 S&P 500 Return 0% 0% 72%
 Trefis Multi-Strategy Portfolio 2% 2% 221%

[1] Month-to-date and year-to-date as of 1/5/2023
[2] Cumulative total returns since the end of 2016

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