The housing market has been under significant pressure in recent years, primarily due to the Federal Reserve’s aggressive interest rate hikes that began toward the end of 2021. These actions have kept short-term rates elevated, creating a substantial barrier for investment activity in the housing sector. The crux of the issue lies not in fluctuating home prices, but in the reality that many homeowners have secured mortgages at historically low rates, making a move financially unappealing. Consequently, this has led to decreased turnover in the housing market, which is detrimental to various stakeholders including mortgage businesses, realtors, and home improvement companies.
However, the stock market appears to be shifting its perception, signaling a potential thaw in the housing market as it’s anticipated that lower mortgage rates will inspire increased activity. In this context, two stocks stand out that have captured the attention of investors: Home Depot (HD) and Rocket Companies (RKT).
Home Depot: Emerging Opportunities
Home Depot has recently rallied thanks to positive earnings and improved guidance. The anticipation that mortgage rates will decline is pivotal for Home Depot, as it traditionally benefits from home turnover. When individuals buy or sell homes, many engage in significant home improvement projects. In fact, the company estimates around a $50 billion shortfall in home improvement spending over the past five years due to rising borrowing costs, indicating pent-up demand for DIY home projects.
Should rates decline, Home Depot is poised to capture a significant share of this demand, which could translate into an additional $10 to $15 billion in sales over the forthcoming years. Such growth would significantly boost earnings for this already well-managed, market-leading retailer.
Technical Analysis: Recent charts reveal that Home Depot is currently experiencing a "Golden Cross," where the 50-day moving average has crossed above the 200-day moving average. This technical situation is often perceived as a bullish signal for future price action. Further analysis of the company’s price patterns reveals it is on the brink of completing a "cup-and-handle" formation, a pattern that suggests strong buyer interest and can indicate significant upward momentum.
Rocket Companies: Positioned for Growth
On the other side of the spectrum is Rocket Companies, a leading mortgage loan originator and owner of the real estate portal, Redfin. After enduring a severe decline—as much as 85% off its all-time highs during the housing market’s downturn—Rocket Companies is emerging as a prime beneficiary of an anticipated recovery in housing activity.
Rocket’s business model directly ties to mortgage demand, so when the market resumes activity, the company stands to gain remarkably. With a high recapture rate of 83%—significantly higher than the industry average—Rocket is well-positioned to rebound when mortgage rates fall. Its capabilities in digitizing the refinancing process make it even more attractive for potential customers, enabling nearly every step of the process to be completed online in a swift manner.
Investor Confidence: The recent investment by ValueAct Capital, which holds a 9.9% stake in Rocket, demonstrates significant confidence in the company’s potential resurgence. Moreover, Rocket’s strategy of pursuing strategic acquisitions to bolster its market share positions it favorably in an evolving landscape.
Risks and Considerations
Investing in both Home Depot and Rocket Companies is not without its risks. For Home Depot, the primary concern remains tied to interest rate fluctuations and overall consumer spending behavior. If rates linger at elevated levels, homeowners may still postpone improvement projects. Conversely, Rocket’s fortunes directly correlate to the revival of the housing market; any hindrances from inflationary pressures might delay the anticipated recovery.
Technical Support Levels: Current analysis suggests that for Rocket, the support level of around $19 could be critical for maintaining upward momentum. Investors considering an entry point might want to observe how the stock responds around this threshold, with $12 serving as a critical long-term support line.
Conclusion
In summary, both Home Depot and Rocket Companies present intriguing opportunities as the housing market appears ready for a potential resurgence. Home Depot stands to benefit from a return of home improvement activity driven by renewed turnover in the housing market. Rocket Companies, with its significant market presence in mortgage origination and digital services, is similarly poised for growth, bolstered by recent strategic investments and acquisitions.
As always, prospective investors should conduct thorough diligence, factoring in market conditions, technical indicators, and individual risk tolerance before making investment decisions. The journey back from the current housing market stagnation may not be immediate, but the signs suggest optimism for both Home Depot and Rocket Companies, positioning them among the best stocks in the market today.
