Despite rising mortgage rates, the housing market has remained resilient, with homebuilders’ stocks slowing but not collapsing.

Many homeowners are locked into lower-rate mortgages, leading to a shortage of homes on the market, which keeps demand high and prices stable.

While affordability for low and middle-class buyers declines, the luxury market, targeting wealthy buyers, remains strong.

Tri Pointe Homes (TPH) has strategically focused on this luxury segment, offering premium homes in high-demand areas.

The company has seen solid financial performance, driven by high sales and strong margins.

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We talked about how, despite mortgage rates rising sharply this year, the housing market has shown resilience, with homebuilders’ stocks slowing but not collapsing.

Many homeowners are locked into mortgages with lower interest rates from previous years, making them hesitant to sell their homes now that rates have risen.

The average fixed mortgage rate gap between existing mortgages and new loans is 320 bps.

This has created a shortage of homes on the market, keeping demand high even as buying a home becomes more expensive. Fewer people are willing to sell, so buyers have fewer options, which keeps home prices elevated and the market stable.

At the same time, the long-term decline in housing affordability has played a major role in shaping the current market.

Over the years, the cost of buying a home has steadily outpaced wage growth, making it harder for people to afford homes.

The median listing price more than doubled in the last decade. It went from around $200K in 2014 to almost $450K. The median income didn’t keep up with this increase.

This trend is driven by factors like rising land and construction costs and increased demand for housing in desirable areas.

As mortgage rates rise and home affordability drops, low and middle-class buyers are finding it increasingly difficult to enter the housing market.

This struggle is real for both buyers and the homebuilders who target them. However, the luxury market, which caters to wealthier individuals, tells a different story.

While many people tighten their belts, wealthy buyers continue to have the resources to invest in premium homes. This means that luxury homebuilders are less impacted by the economic headwinds that are affecting other segments.

For wealthy buyers, purchasing a home is often about more than just securing a roof over their heads; it’s about lifestyle, status, and comfort.

These buyers are less sensitive to mortgage rate fluctuations because they often have more financial flexibility, whether through larger down payments, better credit, or simply paying in cash.

This gives Tri Pointe Homes (TPH) a unique advantage.

Tri Pointe Homes has positioned itself strategically within the luxury housing market, focusing on building premium homes that cater to wealthy buyers.

Unlike the mid-market, where every percentage point increase in mortgage rates can significantly impact a buyer’s ability to qualify for a loan, the luxury market tends to be less sensitive to these fluctuations.

High-net-worth individuals and families often have access to a broader range of financial resources, including cash reserves and investment portfolios, that buffer them against the impact of rising interest rates.

Additionally, the luxury market is often driven by factors beyond mere necessity; prestige, location, and unique architectural features play a significant role in purchasing decisions.

As such, while affordability continues to erode for the middle class, the luxury segment remains floating. Tri Pointe Homes, with its focus on high-end, customized homes, capitalizes on this stability.

The company focuses on delivering more than just houses—it offers a lifestyle. Its developments are often located in prime areas, featuring luxurious amenities, high-end finishes, and spacious layouts.

These elements are exactly what wealthy buyers are looking for, and they’re willing to pay a premium to get them.

Additionally, one of Tri Pointe’s key strategies has been its expansion into high-growth markets, particularly in Texas and the Carolinas.

This move has been part of a broader effort to diversify its portfolio and tap into regions with strong population and employment growth while reducing its reliance on California.

Despite the challenges in the broader market, the company has seen solid financial performance.

It reported $1.1 billion in home sales revenue, a 38% increase year-over-year, driven by a 45% rise in home deliveries to 1,700 homes at an average sales price of $666K.

What’s more, the company has managed to maintain healthy profit margins. The operating margin improved by 420 basis points to 12.6% supported by strong pricing power and disciplined cost management.

This is impressive, considering the rising costs of construction and labor.

Tri Pointe has shown that it can thrive by focusing on high-demand, high-growth regions and maintaining its commitment to quality and luxury.

As the company continues to expand its footprint, it remains a solid investment option for those looking to capitalize on the resilience of the luxury homebuilding market.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research