[ad_1]
In the housing market, a big theme of 2023 was that the new home market had an advantage over the existing home market. Not only did the existing market have tight inventory but it also has been stickier on the price side, with many sellers refusing to budge. That lack of competition, coupled with stubborn sellers, gave builders an edge if they were willing to offer affordability improvements like price cuts or mortgage rate buydowns.
Wall Street took notice right away, and homebuilder stocks boomed. Even Warren Buffett’s Berkshire Hathaway piled in.
Among the 10 major U.S. homebuilder stocks tracked by ResiClub, all 10 outperformed the S&P 500 in 2023.
That includes PulteGroup (up 128.4% over the past 12 months), Toll Brothers (up 106.3%), and KB Home (up 98.6%). Those firms all posted stock gains between December 19, 2022, and December 19, 2023, that were far above the 24.8% gain posted by the S&P 500 Index during the same period.
During the pandemic housing boom—a period of seemingly unlimited housing demand—many single-family builders like PulteGroup achieved record profit margins as they jacked up their prices. Those elevated margins gave builders breathing room to reduce margins (i.e., cut prices or offer mortgage rate buydowns) in pursuit of “finding the market” once mortgage rates spiked in 2022.
The interesting part is that most publicly traded homebuilders were able to “find the market” and still maintain elevated margin levels. Of course, that got the attention of Wall Street investors.
Another reason many Wall Street analysts like homebuilders is that they believe the U.S. housing market is underbuilt, particularly in terms of entry-level single-family homes.
“Believe it or not, homebuilders are not very cyclical,” Chris Verrone, head of technical and macro research at Strategas, said on CNBC in November. “I know that sounds crazy. . . . They can go on these big secular 10-year runs.”
[ad_2]
Source link