The housing market has faced significant challenges since late 2021, primarily due to one of the Federal Reserve’s most aggressive interest rate hiking cycles. High short-term rates have acted as a substantial barrier to investment in the housing sector, with millions of Americans holding onto mortgages at historically low rates. This reluctance to move has constrained the turnover necessary for a vibrant real estate market, leading to stagnation for realtors, mortgage brokers, and home improvement businesses. As the economy begins to stabilize and mortgage rates potentially decrease, the stock market is showing signs of optimism regarding a revival in housing-related activities.
Two companies that have recently garnered attention are Home Depot (HD) and Rocket Companies (RKT). Home Depot has reported strong earnings and positive guidance, suggesting that as mortgage rates decline and homes begin to change hands, the retailer could experience a surge in store traffic and online engagements as homeowners resume postponed projects.
Rocket Companies, on the other hand, is poised to benefit directly from increased housing activity as a major mortgage loan originator and the owner of Redfin, a leading real estate portal. The company is currently in the process of acquiring MR. Cooper, a significant mortgage servicing firm, which could influence its share count in the future. With over 25 million shares held by ValueAct Capital, a recognized activist investment firm, there is a strong belief in Rocket’s potential for a turnaround.
RKT’s stock performance has shown resilience, bouncing back from a low of 85% below its all-time highs during the housing market stagnation. Although mortgage rates remain elevated, the stock is anticipating a wave of activity in the housing sector. Rocket’s impressive recapture rate of 83%, significantly above the industry average, exemplifies its competitive edge in a recovering market. The company’s digital capabilities also make the refinancing process efficient, catering to a growing need for rapid service in the current environment.
Home Depot is also gearing up for significant growth. High-interest rates have led to a notable reduction in home improvement spending—an estimated $50 billion over the past five years—due to homeowners delaying projects reliant on financing options. Should mortgage rates decline, Home Depot could seize a substantial share of this pent-up demand, potentially resulting in an increase of $10 to $15 billion in sales over the coming years.
In terms of risk management, Home Depot’s recent technical indicators have been promising, with its 50-day moving average crossing above the 200-day line—a bullish signal known as a “Golden Cross.” The stock’s momentum indicates it has yet to become overbought despite accumulating interest. A potential cup-and-handle pattern on its price chart suggests a robust buying sentiment is forming, indicating that sellers may have largely exited their positions.
Rocket Companies has also demonstrated strong market positioning following significant gains from its recent lows. With aggressive strategies around market share and acquisitions, the company’s stock is seen as a viable option for investors who anticipate a recovery in the housing market. Safe entry points for new investors could be around $19, with a support line at $12 for long-term investors considering incremental purchases.
As the market adjusts, both Home Depot and Rocket Companies appear well-placed to capitalize on any resurgence in the housing sector, driven by lower mortgage rates and improving economic conditions.
