Homebuilder stocks are on pace for their biggest annual advance in over a decade, a remarkable feat considering how rising interest rates sent mortgage rates soaring in 2023. Now that bond yields are coming down, Wall Street expects that rally to carry over into 2024.

When rates climb, homebuilders typically feel the pinch. This year was an anomaly as tight inventory coupled with insatiable demand outweighed high borrowing costs. As a result, shares of homebuilders soared, with the group on track to finish 2023 at a record high. The sector is up 79%, far surpassing the S&P 500 Index’s 24% gain.

And regardless of whether the Federal Reserve orchestrates a soft or hard landing for the US economy next year, its expected rate cuts have homebuilders poised to continue to outperform the broader market, said Seaport Research analyst Kenneth Zener, who accurately predicted the sector’s performance for two straight years. Zener currently has a buy-rating on all but one homebuilder stock.