These 5 US Housing Stocks Stand Out as the Sector Navigates Challenges

We expect 2026 to be another challenging year for the US housing market, with tariffs and geopolitical uncertainty likely to result in moderate economic growth and higher inflation.

Homebuilders’ moves to improve affordability, primarily by offering more sales incentives, have proved successful in the past three years. However, geopolitical uncertainty and weakening macroeconomic conditions will weigh on new single-family home sales in 2026, and we expect them to decline by the midsingle digits this year.

Our recent report, “US Housing: 2026 Q1,” examines these factors and how we still see selective opportunities within housing-related sectors. We believe there is a runway for greater headship and homeownership rates among younger Americans, especially if mortgage rates ease as we expect.

What’s Keeping Housing Demand Low?

Housing demand has continued to struggle in the face of economic uncertainty, geopolitical conflicts, tariffs, poor affordability, and elevated mortgage rates.

We believe higher mortgage rates have been a major barrier preventing greater housing turnover. Many homeowners are reluctant to sell homes financed with a low mortgage rate only to purchase a home with a much higher mortgage rate. According to the latest data from the Federal Housing Finance Agency, 63% of outstanding mortgages have a contract rate of 5% or less, and 21% have a rate less than 3%.

Supply of New and Existing Homes Remains on an Uptrend

We are seeing mixed trends in the housing supply. Vacancy rates continue to normalize as more supply is added to the market. In addition, the construction backlog of single-family homes is shrinking but remains above prepandemic levels.

New-home inventory remains elevated at 10.3 months as of May 2026. As such, we think homebuilders will closely manage unsold home inventory in 2026 and will continue to pull back on starts if stronger demand does not materialize.

Affordability Remains Challenging, but Could Improve if Rates Drop

Overall affordability continues to suffer as renting remains more affordable than homeownership. However, existing-home price appreciation has begun moderating, and homebuilders continue to benefit by offering incentives to drive sales of new homes.

We expect homebuilders will continue to use sales incentives, base price reductions, and smaller floor plans and lot sizes to make homes more affordable.

We anticipate that the “interest rate lock-in effect” will continue to loosen its grip on the US housing market as time passes, and if mortgage rates move lower.

Top Housing Industry Stock Picks

Through the first half of 2026, stocks with exposure to the US housing market had a mixed performance compared with the broader US equity market. Those with exposure to wood and building products performed well, while the home improvement retail segment remained under pressure.

As of July 22, most of our housing-related coverage was about fairly valued, but we do see selective opportunities within the sector.

Lennar

We think the market is being excessively pessimistic about Lennar’s future margin profile.

Lennar LEN is the second-largest homebuilder in the US based on home deliveries and targets a mix of first-time, move-up, and active adult homebuyers. While Lennar has a large and geographically diverse land portfolio, it has become more asset-light, with 98% of its lots controlled via option contracts or unconsolidated joint ventures. The market is treating Lennar’s business as permanently inferior to its peers, but we think the recent margin underperformance is mostly a medium-term concern. The market is pricing the stock as if homebuilding margins will not improve materially from the current levels, which we think is excessively pessimistic, and this offers an enticing opportunity to long-term-oriented investors who can weather near-term volatility.

James Hardie Industries

James Hardie’s tremendous runway for future growth is not being captured in its stock price.

Aging US houses provide James Hardie JHX a pipeline of repair-and-renovation customers, while a strategy to win contracts with large homebuilders is increasing volumes in new builds. We think the downtrodden share price reflects concerns about the price paid for Azek and whether that merger’s benefits can be realized. We see a decent opportunity for sales of the acquired products and are optimistic that significant cost savings can be extracted from the merger. While we are not as confident as management on the benefits, we think that’s more than compensated by the lower share price.

Restoration Hardware

We think the market is discounting RH’s long-term growth opportunities tied to international expansion and a brand expansion launch.

We believe shares of no-moat Restoration Hardware RH are attractive. We think investors are overweighting near-term pressures while discounting the firm’s long-term growth opportunities. We forecast RH returning to midteens operating profit margins over time. Over the next decade, our average sales growth forecast is 9%, within management’s historical long-term sales growth goal of 8%-12%. Sales growth should continue to stem from stimulus from source books, growth from adjacent offerings (hospitality, guesthouse), and square footage growth as RH converts gallery locations domestically and expands abroad. In our opinion, RH’s operating strategy is set to deliver average returns on invested capital, including goodwill, that reach 22% in 2035.

Invitation Homes

Invitation Homes can create value by moving out of noncore, less efficient homes into properties in growth markets that it can manage more efficiently.

Invitation Homes INVH owns a portfolio of over 85,000 single-family rental homes, most in the starter and move-up segments of the housing market with an average sale price around $350,000 and generally less than 1,800 square feet. The company’s stock price is down over the past year as occupancy continues to slowly decline due to the excess demand created by the pandemic slowly wearing off and because operating expenses growth has been higher than revenue growth. However, occupancy should settle at its historical average, and operating expenses should decelerate toward revenue growth, both of which should allow same-store net operating income growth to pick up in the coming years. We like the company’s mix of starter homes tightly grouped together, which should allow the company to run the portfolio efficiently and maintain high operating margins.

Canfor

We like Canfor’s long-term prospects and current valuation.

Canfor CFP is one of the largest softwood lumber producers in the world, with significant production capacity in western Canada, the Southeastern US, and Sweden. Lumber accounts for over 85% of Canfor’s revenue. Canfor has a significant presence in Canada but has purchased lumber capacity in the Southeastern US to amplify its exposure to the US market and mitigate some tariff risk. While we expect near-term housing pressures to persist owing to affordability woes, removing some of its highest-cost capacity should benefit profit margins, and the company expects US homeownership rates of people aged 25-34 to increase 1.0%-1.5% per year.