Homebuilders: A V-Shaped Vendetta

Summary

• An antihero of the prior financial crisis, Homebuilders have seemingly been on a vendetta over the last six months, asserting themselves as the unexpected leader of the early post-pandemic recovery.
• Homebuilders were slammed at the outset of the pandemic on fears that a coronavirus-induced recession could inflame a repeat of the Great Financial Crisis for the critical U.S. housing.
• Instead, the U.S. housing industry has roared back to life in recent months. New Home Sales, Existing Home Sales, and Home Prices have all seen a substantial reacceleration this year.
• The sharp rebound in housing market activity has been aided by longer-term macroeconomic trends of favorable millennial-led demographics, historically low housing supply, and near-record low mortgage rates.
• Housing remains an “unloved” sector despite the compelling long-term tailwinds at its back. Homebuilders trade at deeply discounted valuations to the S&P 500 despite their stellar growth rates.
• This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »

Homebuilder Rankings

(Hoya Capital Real Estate, Co-Produced with Brad Thomas)

Homebuilders: A V-Shaped Vendetta

An antihero of the prior financial crisis, publicly-traded homebuilders have seemingly been on a vendetta over the last six months, asserting themselves as the unexpected leader of the early post-pandemic recovery. After being slammed at the outset of the pandemic on fears that a coronavirus-induced recession could inflame a repeat of the Great Financial Crisis for the critical U.S. housing sector, homebuilders have roared back to life in recent months, leading the early stages of the post-pandemic recovery. In the Hoya Capital Homebuilder Index, we track the 15 largest homebuilders, which account for roughly $100 billion in market value. Together, these 15 firms constructed approximately a quarter of total single-family homes built last year.

As we discussed since the dark days of mid-March, while the "Housing Crash 2.0" narrative was certainly a clickable headline, macroeconomic fundamentals indicated that the U.S. housing industry was likely to be an unexpected leader of the post-pandemic recovery, a far cry from their role as a primary provocateur during the prior financial crisis. The U.S. housing sector foretold an emerging consumer-led rebound, which continues to catch analysts and economists by surprise, underscored by record-high readings on the Citi Economic Surprise Index. Perhaps the sharpest "V" of all economic data points has been seen in Homebuilder Sentiment itself, which jumped to the strongest levels on record in September, driven by a record surge in Home Buyer Traffic.

Even before we began to see the rebound in Homebuilder Sentiment, the early signs of the unexpected rebound in housing market activity were seen prominently in the Mortgage Bankers Association's weekly mortgage data as well as in Redfin's (RDFN) homebuying demand index, which formed the contours of a sharp V-shaped bounce amid the

Analyst’s Disclosure: I am/we are long HOMZ, AMT, ARE, AVB, BXMT, DRE, DLR, EFG, EQIX, FB, FR, MAR, MGP, NLY, NHI, NNN, PLD, REG, ROIC, SBRA, SPG, SRC, STOR, STWD, PSA, EXR, AMH, CUBE, ELS, MAA, UDR, SUI, CPT, NVR, EQR, INVH, ESS, PEAK, LEN, DHI, HST, AIV, MDC, ACC, PHM, TPH, MTH, WELL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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