07/16/2023
I logged into my investment account this week and saw — to my viewing pleasure — that the homebuilder stocks that I own are all doing, well, quite well. As a real estate broker, it's not surprising: homebuilders are in a strong position, and investors are seeing the opportunity from strong current cashflows and are feeling confident about future cashflow projections.
So what's all the fuss leading to all-time-highs for stocks like Toll Brothers, DR Horton, et al?
1. Near Record Low Inventory — demand is low, but supply is even lower right now. Inventory of active listings is scraping the bottom of what we've historically seen, and even though demand is down from a year ago, supply is down even more. This bodes well for prices, which contribute directly to homebuilders' top line revenue.
2. Easing Fed — a rate hike pause suggests that the Fed is getting close to the top of its rate hike cycle. One more hike? Maybe, we'll see. Either way, one of the main risks for demand (higher mortgage rates) may soften with an easing fed. This is even more likely with the lower-than-expectations numbers from the CPI that we recently booked.
3. Costs are down — yes, those crazy commodity price increases during the pandemic are all but a footnote in history at this point. Raw materials are way down, and labor prices are stabilizing in a big way. This helps with both outlook of bottom line profit and overall improved margins.
4. Economic strength — a soft landing looks ever more likely. I mean, can any of us say that we truly expected the economy to be as resilient as it has been? I can't say I was feeling that confident, but jobs numbers and improvements in consumer sentiment are pretty real. In our market, we are seeing buyers feeling confident and lenders are approving a surprisingly large number of high-quality buyers.
5. Everything Rally — it's not secular, but it certainly doesn't hurt that stocks are in a bit of a boom currently. Can't ignore this.
That's the jist of it — a pretty strong current picture for homebuilders, and a good outlook going out for many quarters. That should be something to celebrate, as it means a) homebuilders are incentivized to keep building and b) the consumer is stronger than we might think.
At Tammik Real Estate Group, we provide the knowledge, quality of service, and connections to help you achieve success in your homebuying or selling journey. Ready to move? Know someone who is? We're looking forward to connecting! Evette Elizondo
