Despite high mortgage rates, homebuilder sales and stock prices are on the rise. Why?

Shares of U.S. homebuilders climbed on Tuesday, indicating that a lack of existing homes for sale and strong demand in the face of high loan rates are boosting earnings.

PulteGroup (PHM), one of America’s leading homebuilders, posted a 32% increase in first-quarter profit to $3.10 per share, exceeding the Visible Alpha consensus estimate of $2.37. Home sales revenue grew by 10% to $3.8 billion during the quarter, driven by an 11% increase in closings.

“After more than a decade of underbuilding, it is estimated that our country has a structural shortage of several million homes,” President and CEO Ryan Marshall stated in the company’s results report. “Given PulteGroup’s broad operating platform and deep product portfolio … we are well positioned to expand our market share while helping to provide much needed new housing stock.”

However, underbuilding isn’t the only reason purchasers are increasingly looking for new houses built by companies like Pultegroup. High mortgage rates, currently averaging around 7.5%, have effectively locked homeowners into their existing 3% and 4% mortgages, depleting the market’s inventory.

In addition, homebuilders have been able to give purchasers incentives such as mortgage rate buy-downs, which have helped to alleviate the impact of high-interest rates and keep new homes selling.

Existing homes remain stagnant as new home sales surge.

According to figures released Tuesday, new house sales increased by 8.8% in March to 693,000 on an annualized basis, the highest level since September. The median sales price jumped to $430,700 from $406,500 the previous month.

Meanwhile, existing home sales decreased nearly 4% year on year in March to 4.19 million, the National Association of Realtors reported last week.PulteGroup shares rose 4.6% on Tuesday after a good earnings report, extending their 12-month return to nearly 80%.

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On Tuesday, industry peers Builders FirstSource (BLDR) and D.R. Horton (DHI) closed up 5.1% and 3.5%, respectively. Builders FirstSource’s stock has practically doubled in price over the last year, while D.R. Horton’s has increased by approximately 38%. Toll Brothers (TOL) rose 5% on Tuesday and is up more than 90% year to date, while Lennar (LEN) rose 3.1% and is up almost 40% in the previous year.

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