Why Homebuilder Stocks Are Soaring This Year

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HD: Home Depot logo
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Home Depot

Our theme of Housing Stocks, which includes the stocks of home builders, building products companies, and home improvement players, has fared well thus far in 2023, rising by a solid 50% year-to-date. This compares to the S&P 500 which remains up by about 19% over the same period. While rising interest rates and high inflation impacted the housing sector in 2022, things are clearly improving for the housing market this year.

The total number of new single-family homes sold for the month of May, the most recent data reported by the U.S. Census Bureau, stood at a seasonally adjusted annual rate of 763,000 units, up 20% versus last year’s number. Prices have also cooled a bit, with the median price of homes standing at $416,300 for the month, compared to about $450,700 in the year-ago quarter. That said, housing starts for single-family homes declined a bit in June, and permits for future construction rose 2.2% to a rate of 922,000 units, the highest level since June 2022. Inflation and supply chain challenges are also easing for the housing sector, potentially helping input costs and prices for builders. Retail inflation in the U.S. rose at just 3% for June, marking the lowest increase seen in over two years.

Now, although interest rates on mortgages have surged from lows seen through the Covid-19 pandemic, the Fed has held off on rate hikes and the average 30-year fixed rate mortgage in the U.S. stands at about 6.8% presently, down from recent highs of about 7.1% seen late last year. This could make financing new homes a bit cheaper. There also remains a fundamental undersupply of homes, with a wide range of estimates projecting that the U.S. may be short of anywhere between 1.5 million to 5 million homes. [1] This might indicate that housing players may still have a good level of demand visibility, with volumes and revenues likely to hold up. Within our theme Pulte Group (NYSE:PHM) stock has been one of the strongest performers, rising by about 69% year-to-date. On the other side, Home Depot (NYSE:HD) has been the worst performer, with its stock up just 1% year-to-date.

Relevant Articles
  1. With The Stock Flat This Year, Will Q1 Results Drive Home Depot Stock Higher?
  2. Down 8% This Year Will Home Depot Stock Rebound After Its Q3?
  3. Home Depot Stock To See Little Movement Past Q2
  4. Can Home Depot Stock Return To Pre-Inflation Shock Highs?
  5. Why Are Housing Stocks Outperforming?
  6. Why Has Home Depot’s Stock Fallen 10% Since The Beginning Of The Year?

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 HD Return 3% 1% 139%
 S&P 500 Return 2% 18% 103%
 Trefis Multi-Strategy Portfolio 6% 26% 305%

[1] Month-to-date and year-to-date as of 7/24/2023
[2] Cumulative total returns since the end of 2016

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Notes:
  1. Washington Post []