- Home builders are one of the best-performing equity sectors in 2017. The sector has surged more than 30%, nearly tripling the performance of the S&P 500.
- Strong US economic data – and the accompanied income growth – has renewed hopes that pent-up demand will be unleashed from the rental markets into home ownership.
- Home builders delivered a strong 9% year over year growth in orders, but the benefits of the recovery continue to accrue to the largest home builders. Small builders have struggled with rising construction costs.
- Buyers continue to find that single family housing is in short supply. Supply constraints have lifted national home values by 44% since 2012. Higher construction costs explain much of the price inflation.
- We are negative on the home building sector relative to consensus. Restrictive zoning, rising construction labor costs, and buyer affordability issues will continue to hold back the recovery.
Source: Seeking Alpha, September 13, 2017, Hoya Capital Real Estate