US homebuilders struggle with high mortgage rates

Homebuilding companies in the U.S. are struggling as the housing market faces challenges. Initially hopeful about 2025, homebuilders are now lagging behind the general stock market. A significant example is James Hardie Industries, which announced a large acquisition of decking maker Azek for $8.75 billion. Following the announcement, James Hardie's stock dropped over 15%. Investors are concerned about the deal, which primarily benefits Azek shareholders. They will receive $3.8 billion in cash and a 26% stake in the new combined company, estimated to be worth $15.8 billion. This offer is more than 30% above Azek's trading price before the deal. James Hardie’s investors, on the other hand, are estimated to be 8% worse off after the announcement. They now face a challenge to boost revenue in a tough market. Mergers and acquisitions in the building supplies sector are rare, with total deal value at a 10-year low. Still, a notable transaction occurred when Beacon Roofing Supply accepted an $11 billion offer from billionaire Brad Jacobs. The challenges persist due to high mortgage rates, which are affecting the housing market. Homeowners hesitate to move, fearing higher loan costs. Currently, 30-year fixed mortgage rates are around 6.7%, which remains historically high despite some recent rate cuts by the Federal Reserve. In this uncertain environment, homebuilders have seen their early-year optimism fade. Although Azek’s shares rose by 20% after the deal was announced, the combined value of James Hardie and Azek has since decreased. This suggests that risking high offers in a shaky economy can lead to complications.