After a 2025 marked by high interest rates and deteriorating affordability in the U.S., the housing sector enters 2026 at a more subtle—but potentially constructive—inflection point. As the political debate in Washington brings housing costs to the center of the agenda and mortgage rates begin to ease at the margin, the focus shifts away from a full cyclical recovery toward when, and for whom, transaction volumes may return.
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In this context, D.R. Horton (DHI) stands out as a particularly efficient way to express a bullish affordability trade in transition. This is not a broad, directional bet on housing; rather, it reflects the idea that even small improvements in the macro backdrop can translate into disproportionate operating leverage for the right builder. On that basis, I am adopting a Buy rating on DHI at current levels.
Affordability Is Becoming a Policy Variable
Housing affordability has become an extremely sensitive issue in the U.S., and increasingly one that is being treated as an explicit policy objective ahead of the upcoming midterm elections later this year.
Recent proposals by President Trump—including directing Fannie Mae and Freddie Mac (government-sponsored enterprises that support the private mortgage market) to increase purchases of mortgage-backed securities (MBS), as well as floating a temporary cap on credit-card interest rates—point to a coordinated effort to ease balance-sheet pressure on U.S. households. Ultimately, these measures aim to lower the effective cost of living for the average voter.
From a market perspective, this matters because housing affordability is now acting as a binding constraint. At current price levels, mortgage rates around ~6% sit very close to the threshold at which monthly payments become prohibitive for a large share of potential buyers. As a result, even a modest move toward ~5.5% could have a non-linear effect, improving payment-to-income ratios and reactivating household demand that has been sidelined by today’s rate environment.
For equities—particularly in the case of D.R. Horton—this setup creates short-term demand optionality, even if it does not yet point to a full cyclical recovery.
D.R. Horton is Built for an Inflection
Within U.S. housing equities, D.R. Horton stands out as one of the cleanest ways to gain exposure to a potential near-term improvement in affordability. The company is rate-sensitive by design, able to “manufacture affordability” at the margin through incentives, and supported by a strong balance sheet—all of which make it a particularly effective vehicle in a constructive, rate-driven setup.
In its most recent Q1 results, DHI reported an 81% mortgage capture rate, with 63% of buyers being first-time homebuyers and an average household income of $95,600. Taken together, this profile describes a customer who is highly sensitive to monthly payments and operating close to affordability limits. As a result, even small declines in mortgage rates can meaningfully change eligibility and purchase decisions, far more so than in higher-end or luxury segments.
That sensitivity is already visible in the numbers. D.R. Horton reported 18,300 net sales orders in 1Q26, up 3% YoY, explicitly attributing the performance to more aggressive use of mortgage rate buydowns. Over the same period, gross margin declined to 20.4% from 22.7% in Q1 2025, reflecting a deliberate trade-off of margin for volume—typical of a transition regime focused on unlocking marginal demand.
Rather than waiting for the market to deliver structurally lower mortgage rates, DHI can reduce the buyer’s effective payment through buydowns, leveraging an in-house ecosystem that captures roughly 81% of its mortgages. This allows the company to react earlier to improvements in affordability, particularly when buyers are on the edge of eligibility.
That said, if buydowns are currently sustaining volumes despite elevated rates, they become an amplifier in a falling-rate environment — enabling DHI to capture growth sooner and normalize margins later.
Why DHI Bulls Are Excited
Even though it is the largest player in the U.S. housing sector, D.R. Horton is still relatively “modest” by mega-cap standards. With a market capitalization of around $44 billion at the time of writing, even a marginal shift in institutional flows back toward housing could move prices faster than the market might expect.
At the same time, the investable universe of homebuilders remains fairly lean. The iShares U.S. Home Construction ETF (ITB) holds roughly 48 positions, with an aggregate P/E of around 14.8x as of January 2026. In practice, this creates a concentrated pocket of the market where incremental flows tend to hit the most liquid and benchmarkable names first—with DHI squarely in that group.
Lastly, the broader backdrop supports a favorable asymmetry. After a weak 2025, with ITB down roughly 5% over the past twelve months, expectations have been reset. A full-blown housing boom is not required to justify a re-rating. A mere combination of policy signals turning more supportive, easing mortgage rates, and “less bad” housing data would likely suffice. The market reaction already hints at this dynamic, as the average 30-year mortgage rate slipped toward ~6.09%, DHI shares rose by roughly 4% on the day, illustrating how quickly the trade can respond to an improved outlook.
Is DHI A Buy, Sell, or Hold?
Wall Street analysts are not fully convinced by the bullish case for D.R. Horton. Of the 13 ratings issued over the past three months, only four are Buys, while seven are Holds and two are Sells. The average target price stands at $162.33, implying a potential upside of roughly 8% over the coming 12 months.
Short-Term Asymmetry in D.R. Horton
The bullish case for D.R. Horton is driven by a marginal improvement in affordability, not by a full-blown U.S. housing boom. Given its rate-sensitive profile and its ability to unlock demand through incentives, DHI is well-positioned to capture volumes ahead of peers as mortgage rates stabilize or decline.
In a sector that remains lightly crowded and where expectations are still modest, this setup creates a favorable short-term asymmetry, warranting a Buy for DHI, in which flows and a shift in narrative could drive upside faster than the market currently anticipates.