the fed’s fastpaced interestrate hikes have significantly slowed the housing market but many home builders are benefiting homebuilder stocks are climbing thanks partly to high mortgage rates that are keeping many homeowners in place so far this year pultegroup phm 022decrease red down pointing triangle is up about 70 and dr horton dhi 073decrease red down pointing triangle and lennar lenb 162decrease red down pointing triangle are both up more than 30 compared with a 16 rise in the sp 500 investors and analysts say the rally is thanks to a shortage of homes for sale new listings in may decreased by 25 from the previous year according to redfin that was the sharpest decline on record since may 2020 nationally there were 108 million existing homes for sale or under contract at the end of may in may of 2019 there were 191 million the federal reserve’s fastpaced rate hikes have significantly slowed the housing market but many home builders are actually benefiting higher interest rates are keeping many current homeowners from selling their homes because they don’t want to get saddled with a muchhigher mortgage rate so the demand for brandnew homes is red hot most homes that get sold in the us are existing homes but newhome sales are playing a bigger role newhome sales as a percentage of home sales went from 15 in early 2018 to 19 this year according to anthony pettinari a research analyst at citigroup the largest builders are benefiting the most according to pettinari the top three publicly traded builders—dr horton lennar and pultegroup—have seen their share of newhome sales rise from 22 to 31 over roughly the past five years homebuilding demand is particularly strong in lowercost states across the american south where many people moved during the pandemic after they realized they could work from home “generally the largest homebuilding markets are in south florida and texas” said rafe jadrosich a senior equity analyst at bank of america “those markets are benefiting from migration trends as well as corporate relocation and a robust job market” retirees looking for a new chapter are also driving demand “i think home builders are underinvested in by many portfolio managers because of this mantra over and over again that higher rates are not good for home builders” said ken mahoney president of mahoney asset management in new jersey but mahoney said demand for the industry is strong “the 55andolder community…they can’t build houses fast enough for this demographic” he said to be sure higher rates aren’t all good news for home builders many wouldbe buyers say the higher rates are forcing them to put their plans on hold but even with that headwind newhome sales are more than holding up newhome sales were up 12 in may over the previous month and up 20 from a year ago according to the us census bureau but existinghome sales in may were up 02 over the previous month and down 20 from the previous year according to the national association of realtors homebuilder stocks fell sharply last year pultegroup dr horton and lennar all dropped about 20 at the time the industry was still plagued by supplychain problems that started with the pandemic and investors were unsure how newly high interest rates would affect the industry “it was actually a year ago yesterday when we sent out the report on the group talking about the fact that there was very little positive sentiment sentiment had soured so much on the home builders” paul hickey cofounder of bespoke investment group said recently a survey published by the national association of home builders showed that homebuilder sentiment fell sharply in 2022 it has since rebounded “it’s a perfect example of the market where just when you think there’s nothing that can go right for a group that’s when things start to go right” hickey said