Argus

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Jun 22, 2026

Market Outlook

Bullish

-

Short

Summary

We had high hopes for housing at the beginning of 2026, and still do at midyear. Mortgage rates were on a steady decline to 6% until the war with Iran sent 30-year borrowing costs higher by 50 basis points at the start of the spring selling season. While residential fixed investment, the category that includes homebuilding in the Gross Domestic Product (GDP) report, has been soft, the Homebuilders Exchange Traded Fund (XHB) is up 8.2% on a year-to-date basis. That's not bad for an "out of favor" sector compared with the record-breaking S&P 500, which has booked a 10.1% gain for the year through Friday. The stock market is always looking forward. On a fundamental basis, we believe there is a shortage of affordable housing, new homes are historically cheap relative to existing homes, and we believe big builders have the operating efficiency and financial strength to take market share from small local builders. Toll Brothers, which is the leading builder of luxury homes, trades at 12.2-times our FY26 earnings estimate and 11-times our FY27 estimate after returning 15% this year and 43% over the last 12 months. Builders got a boost at the beginning of June when bargain-conscious Berkshire Hathaway announced an agreement to purchase Taylor Morrison Homes. Residential investment, which also includes home improvement spending, represented just 3.7% of GDP at the end of 1Q. That is well below the average of 4.6% since the beginning of 1947. We expect residential investment

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