The housing market has been effectively frozen for nearly two years. High interest rates created high mortgage rates. That deterred possible sellers from changing homes, given the high jump in interest rate costs.
Now, with rates set to decline later in the year, the housing market could be set to open up. And lower rates could help all homeowners, but especially make it easy for first-time buyers to get into a starter home.
That’s good news for companies like D.R. Horton (DHI). The construction company builds a number of homes, from single-family to townhomes, to multi-units. It could benefit no matter how the housing market thaws out.
While shares have already rallied 50% in the past year, future earnings growth still makes this an attractive momentum play. Over the past year, earnings and revenue are both up less than 3% thanks to the sluggish housing market. A thawing market could lead to a big jump for earnings.
D.R. Horton trades at just 11 times forward earnings, indicating there’s still more upside as the housing market starts to heat up.
Action to take: Momentum investors may like shares here. D.R. Horton also pays a 0.7% dividend at current prices.
For traders, the January 2025 $200 calls, last trading for about $7.00, could turn a year-end rally into mid-to-high double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.