US Homebuilders Are Still in a Sweet Spot
- By John Tierney
- 5 min read
Summary
• Homebuilder stocks and the homebuilder ETF XHB are rising again after DR Horton told investors demand for new homes far exceeds their supply.
• Housing formation is outpacing new housing supply, so new housing will be readily absorbed.
• We see little risk of a homebuilder overbuilding mania. The skilled labour supply is insufficient to boost housing supply significantly. As money from the new infrastructure bill flows to new projects, homebuilders will increasingly struggle to keep – let alone add – workers.
• Housing remains surprisingly affordable despite prices rising 18% over the past year. If mortgage rates rise, recent home price appreciation will ease or even reverse, supporting affordability.
Investment Recommendation
• Following our earlier note, we continue to recommend overweighting homebuilders via the XHB ETF and underweighting SPY due to strong underlying fundamentals.
• Homebuilders have previously been a boom-and-bust industry, so XHB may suffer periods of volatility or underperformance. Given current housing fundamentals, we would view these as opportunities to add to positions.
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