Zacks Industry Outlook Toll Brothers and Dream Finders Homes

Industry Overview - The U.S. homebuilding industry is facing challenges such as elevated mortgage rates, high construction costs, and a shortage of buildable lots, which are impacting the prospects of the Zacks Building Products - Home Builders industry [1][4] - Despite these challenges, the industry is expected to grow due to anticipated Federal Reserve rate cuts, limited home supply, and strong demand for homeownership [2][6] Economic Factors - The Federal Reserve has maintained interest rates between 4.25% and 4.5%, with a potential for cuts later in 2025, which could stabilize the housing market [4][6] - The Fed has revised its GDP growth forecast for 2024 down to 1.7% from 2.1%, while projecting inflation to rise to 2.7% [4] Market Dynamics - The housing market is under pressure from rising material and labor costs, a shortage of buildable lots, and financial strain on homebuilders, leading to price cuts and sales incentives [5][10] - There is a significant shortage of new and existing homes due to over a decade of under-building relative to population growth, which is driving demand for new homes [7][8] Company Strategies - Homebuilders are implementing mortgage buydown programs and balancing speculative building with build-to-order projects to meet diverse buyer needs [2][9] - Companies are focusing on cost control and efficiency in homebuilding to manage rising raw material prices and improve operating leverage [10][11] Performance Metrics - The Zacks Building Products - Home Builders industry has underperformed the S&P 500 Index, declining 20.5% over the past year compared to the S&P 500's 9% increase [16] - The industry is currently trading at a forward price-to-earnings ratio of 8.87, significantly lower than the S&P 500's 22.85 [18] Company Highlights - Dream Finders Homes (DFH) has shown consistent growth, closing 8,583 homes in 2024, up from 7,314 in 2023, and has a land-light approach that reduces financial risk [20][21] - Toll Brothers has signed 2,307 net contracts worth $2.3 billion, reflecting a 13% increase in units and 12% in value, while maintaining a disciplined financial strategy [24][25]