Mortgage Applications Are Up 21% Year Over Year Despite Rising Interest Rates. These Homebuilder Stocks Could Benefit.

In April, mortgage applications soared 21% year over year, per the Mortgage Bankers Association. Did it happen due to plunging interest rates? Nope -- the average interest rate for most 30-year fixed-rate mortgages actually moved up a notch, as of May 7, from 6.30% the week before to 6.37%, per Freddie Mac. (Those rates are down a mite from a year ago, when the average was 6.76%.)

There are multiple explanations for the rise in mortgage applications -- and multiple beneficiaries.

Image source: Getty Images.

Why all the mortgage applications?

Here are some explanations:

• Pent-up demand: While many would-be homebuyers have been waiting for significantly lower rates before they buy, plenty don't want to wait any longer, or can't.
• Lower rates: Interest rates are down a little now.
• Less expectation of lower rates: Many people may no longer be expecting interest rates to fall sharply anytime soon -- because of inflation. When inflation rises, the Federal Reserve will act to cool the economy by hiking interest rates.

Homebuilders positioned to profit

When many people are looking to buy homes, that's good news for homebuilders. Here are a few to consider for your long-term portfolio:

1. Lennar

Lennar (NYSE: LEN), with a recent market value near $21 billion, is a major American homebuilder, recently sporting a dividend yield of 2.2% -- and a total shareholder yield (including the effect of share buybacks) of 8.5%.

It has a lot going for it, such as the fact that the U.S. housing market needs a lot more homes -- especially as millennials look to buy. In its first quarter, Lennar posted a decrease in revenue, but also noted a backlog of 15,588 homes, worth about $6 billion, and a 1% increase in new orders, to 18,515. Interestingly, Lennar and some other homebuilders are proposing building starter "Trump Homes" -- which could potentially spur sales.

Clearly, Lennar isn't firing on all cylinders in this environment, but that may be why its stock seems reasonably valued, with a recent price-to-sales ratio of 0.65, below the five-year average of 1.0. The recent price-to-earnings (P/E) ratio of 12.2 is a bit above the five-year average of 8.4.

2. DR Horton

DR Horton (NYSE: DHI) is an even larger homebuilder, with a recent market value of nearly $40 billion. Its recent dividend yield of 1.2% is smaller than Lennar's, but its total yield (including share buybacks) is higher, at a recent 9.9%.

It has built more than a million homes in America, and is poised to build more. Its second quarter also featured falling revenue (by 2% year over year) -- and a rising backlog of orders, worth about $6.4 billion.

A word of caution

Despite some optimism for homebuilders, it's not the best of times overall. Buying now might serve you well -- especially if you collect a dividend while you wait -- but homebuilders may continue to face headwinds for longer. The war with Iran, for example, could disrupt our economy, as some tariffs already have, and inflation is pinching many consumers' pockets. If the economy slows, so will enthusiasm for homebuying -- though, of course, things do change over time, and people will still need and want to buy homes over the long run.

Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends D.R. Horton and Lennar. The Motley Fool has a disclosure policy.