What makes housing stocks cyclical?

Housing stocks are considered "cyclical" because they tend to rise and fall with the broader economic cycle. When the economy is strong, interest rates are favorable, and consumer confidence is high, demand for homes typically increases. Conversely, during economic downturns or when interest rates rise sharply, housing activity often slows. This means housing stocks can be more volatile than some other sectors, but they also offer potential for strong growth during economic expansions.

What is the housing shortage, and why does it matter?

The housing shortage refers to the gap between housing supply and demand in the United States. Current estimates suggest America needs several million additional homes to meet demand. This shortage has developed over years of underbuilding following the 2008 financial crisis, combined with population growth and changing demographics. For investors, this shortage creates a long-term tailwind for companies that build new homes or supply materials for construction and renovation, potentially supporting demand even during economic slowdowns.

How do interest rates affect homebuilding stocks?

Interest rates have a significant impact on homebuilding stocks because they directly affect mortgage rates and housing affordability. When interest rates rise, mortgages become more expensive, which can reduce demand for new homes and put pressure on homebuilder stocks. Conversely, when rates fall or stabilize at lower levels, affordability improves, often boosting home sales and homebuilder stock performance. This is why housing stocks often react strongly to Federal Reserve announcements about interest rate policy.

What's the difference between a homebuilder and a housing supplier?

Homebuilders (like DHI and LEN) are companies that develop land and construct houses, selling directly to homebuyers. Housing suppliers (like BLDR and GMS) manufacture or distribute the materials that go into building homes, such as lumber, wallboard, roofing, or flooring. They sell to homebuilders, contractors, and sometimes directly to consumers. While both types of companies are tied to housing market activity, suppliers may have more diversified revenue streams as they often serve both new construction and renovation markets.

What are manufactured or factory-built homes?

Manufactured or factory-built homes are houses that are constructed almost entirely in a factory setting before being transported to their final location. Companies like SKY and CVCO specialize in this housing segment. These homes are typically more affordable than traditional site-built homes, making them an important part of addressing housing affordability challenges. They're built to federal construction standards, are often energy-efficient, and can be produced more quickly than conventional homes. As housing costs rise, manufactured housing represents a growing segment of the residential market.

14 handpicked stocks

Dream Home Economy

Want to own a piece of the American Dream? This collection features companies that build homes, supply materials, and provide essential services across the entire homeownership lifecycle. These carefully selected stocks represent the backbone of where Americans live.

Han Tan | Market Analyst

Published on June 17

Top Picks from This Group

Here are a few of the assets in this group. Create an account to unlock the full list.

DR Horton, Inc.

DHI

Current price

$171.47

As one of the largest homebuilders in the United States, it provides direct exposure to new residential construction.

Lennar Corp.

LEN

Current price

$128.33

This major homebuilder has a nationwide presence and also offers financial services, covering multiple aspects of the homebuying process.

Builders FirstSource, Inc.

BLDR

Current price

$127.72

This company is a leading supplier of structural building products, making it integral to the construction supply chain.

PulteGroup, Inc.

PHM

Current price

$134.88

NVR, Inc.

NVR

Current price

$8,071.61

LGI Homes, Inc.

LGIH

Current price

$52.28

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12 Month Growth Potential

Use the growth calculator to see how much investing in these assets could return over one year, based on aggregated analyst sentiment provided by Refinitive Ltd.

If you invested across these assets:

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In 12 months it might be worth:

$1,000.00

+21.05%

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About This Group of Stocks

Our Expert Thinking

This collection focuses on the extensive network of businesses that make homeownership possible, spanning from initial land development to final interior finishes. With persistent housing shortages nationwide and steady demographic demand, companies in this space are positioned to benefit from long-term structural tailwinds.

What You Need to Know

Housing stocks tend to be cyclical, meaning they rise and fall with economic conditions, interest rates, and consumer confidence. This group offers exposure to the entire home construction ecosystem, from large-scale builders to the suppliers of critical materials that make houses functional and beautiful.

Why These Stocks

These companies were carefully selected to represent market leaders across the housing value chain. From national homebuilders constructing new neighborhoods to the manufacturers producing everything from roofing to flooring, each stock plays a vital role in addressing America's ongoing housing needs.

Group Performance Snapshot

21.05%

Average 12 Month Profit

On average, analysts expect assets in this group to grow 21.05% over the next year.

7 of 14

Stocks Rated Buy by Analysts

7 of 14 assets in this group are rated Buy by professional analysts.

Source: Analyst sentiment is provided by Refinitiv Ltd, a global leader in financial market data with over 40k business clients. Refinitiv Ltd is an independent third party to Nemo. This is not advice.

Why You'll Want to Watch These Stocks

🏘️

Home Sweet Investment

America faces a housing shortage of millions of units, creating steady demand for new construction and renovation that could benefit these companies for years to come.

🔄

Riding The Cycle

Housing stocks often move ahead of economic shifts. Getting in at the right moment could position you for gains as interest rates stabilize and homebuying activity picks up.

👪

Demographic Tailwinds

Millennials are in prime homebuying years and Gen Z is entering the market. This generational wave creates a massive customer base for companies that build and outfit homes.

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