A house is the most expensive thing most of us will ever buy, and that's reflected in housing's outsize influence on the U.S. economy. Housing contributes an estimated 15% to the U.S. gross domestic product (GDP), or about $3.6 trillion in annual spending.
Housing-related spending takes many different forms, from paying rent to buying a home to paying for upkeep and renovations. As a result, there are many different types of housing stocks to consider adding to your portfolio. Many are cyclical, and some are ideal for income-focused investors. For example, real estate investment trusts (REITs) are particularly incentivized by tax laws to pay high dividends.
The bull case for the housing market
Why would you want to add housing-related stocks to your investment portfolio? Consider three long-term trends that should enable the industry to continue to grow for years to come:
- Slowly falling mortgage rates: Mortgage interest rates are up big from record lows, but they are still below historical standards. Lower rates encourage prospective homebuyers to enter the housing market and allow them to pay higher prices for their homes.
- Rising homeownership demand: Some millennials have entered adulthood unwilling or unable to become homeowners. As this generation ages, however, family creation will be on the rise, along with the demand for home ownership. Any federal government support to reduce the burden of student loans should increase housing demand by making it easier for younger buyers to afford their own homes.
- Rising time spent at home: We're getting out more than we did during the lockdowns of the COVID-19 pandemic, but the last few years have perhaps forever altered work-life balance and put more emphasis on the comforts of home. Many employees continue to work at least partially from home. With more time spent at home, the demand for home ownership is likely to increase.
Will inflation sink housing?
As noted above, conventional wisdom states that when interest rates rise, home prices suffer. Inflation jumped in 2024 and continues to be a concern, which has put pressure on homebuilder stocks.
We've seen higher rates slow housing sales, but there is still plenty of long-term upside. On a historical basis, the nation has a massive undersupply of housing stock. It's going to take years of building just to match the new millennial household formation and demand.
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| NVR (NYSE:NVR) | $21.3 billion | 0.00% | Household Durables |
| LGI Homes (NASDAQ:LGIH) | $1.1 billion | 0.00% | Household Durables |
| CareTrust REIT (NYSE:CTRE) | $7.9 billion | 3.68% | Health Care REITs |
| Home Depot (NYSE:HD) | $384.9 billion | 2.37% | Specialty Retail |
| Rocket Companies (NYSE:RKT) | $4.6 billion | 0.00% | Diversified Financial Services |
The best homebuilding and housing stocks
This is a broad category, and there are many competitors in each subsector. Here are a few standout companies in the housing sector whose stocks would make fine additions to an investment portfolio.
1. NVR
NYSE: NVR
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NASDAQ: LGIH
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NYSE: CTRE
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NYSE: HD
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NYSE: RKT
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Pros and cons of investing in housing stocks
Like any sector, there are advantages and disadvantages to investing in housing stocks.
Pros:
- Strong long-term demand given the urgent need for housing in the U.S.
- Predictable cash flows that allow for dividends, making them solid income stocks.
- For those interested in real estate, buying stocks is easier and more liquid than investing directly in properties.
Cons:
- Housing is subject to a lot of macro headwinds, with massive supply chains and the need for lower-cost labor.
- Government policies, including tariffs, can significantly affect profitability, as can mortgage rates.
- Houses are expensive, and during periods where sales are low, housing companies can be forced to hold a lot of inventory on their balance sheet.
- Housing stocks tend not to appreciate as fast as tech stocks and other high-growth sectors.
Portfolios, like homes, need strong foundations. Housing stocks can provide the bedrock every investor needs.
How to invest in housing stocks
- Open your brokerage app: Log in to your brokerage account where you handle your investments.
- Search for the stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
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