Don’t Expect Outsize Returns From Housing Stocks In 2022

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our subject housing stock, That includes stocks from home builders, building products companies and home improvement players, up about 45% compared to the S&P 500, which had a solid 2021, up about 27% year over year. The outperformance was driven by strong demand for larger homes in the suburbs, lower mortgage rates and tighter inventory, which resulted in higher home prices. For example, the average price of newly built homes rose about 19% year-on-year during November. So what’s in store for the housing stock in 2022? While we don’t expect the theme to outsize returns this year, there are a few factors that could benefit the housing stock.

Cases of COVID-19 in the US are reaching an all-time high, driven by the spread of the Omicron virus, which is clearly better able to evade the immune response provided by vaccines. With this in mind, it is very likely that the remote working and hybrid work trend may continue for the foreseeable future, helped by housing demand. Housing prices may rise further. According to a survey by the National Association of Realtors, housing prices are expected to increase by about 5.7% in 2022. While mortgage rates are likely to rise higher this year, the Fed has outlined three interest rate hikes, and this could prove to be a headwind for the market.

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within our theme Dr. Horton (DHI), one of the largest homebuilders in the United States in terms of volume, has been the strongest performer, with its stock up nearly 59% year-over-year. On the other hand, Established Building Products (IBP)Ltd., an installation contractor for insulation for residential and commercial projects, has been a relative underperformer, with its stock rising nearly 29%.

Below you’ll find our previous coverage of the housing stock theme where you can track our outlook over time.

[11/22/2021] Established Building Products, Home Depot: Stocks to play strong housing market

our subject housing stock That includes stocks from home builders, building products companies, and home improvement companies, which is well ahead of the S&P 500, rising about 45% year-over-year, up nearly 25% over the same period.

Data from the housing market lately has been somewhat mixed. While the number of new permits issued for future construction increased by 4%, housing starts, an indicator of new homebuilding activity, increased by 0.7 from a seasonally adjusted annual rate of 1.520 million units in October. % has declined. The decline is partly due to material shortages and rising prices and constraints in the land and labor markets. However, housing demand remains strong, with a severe shortage of pre-owned homes in the market resulting in record home prices. The average sale price of homes sold in the US increased to approximately $405,000 in the third quarter of 2021, a nearly 20% increase from the previous year. This should augur well for home builders and building products companies going forward in our theme.

within our subject, Home Depot (NYSE:HD) The company has been the strongest performer, with its stock rising nearly 45% year-over-year. On the other hand, Established Building Products (NYSE: IBP), an installation contractor for insulation for residential and commercial projects, has been among the underperformers in Theme, growing nearly 35% year-on-year.

[10/14/2021] Housing stocks worth watching despite mixed building data

our subject housing stock That includes stocks from home builders, building products companies, and home improvement companies that outperformed with nearly 20% year-over-year growth, well ahead of the S&P 500, which gained nearly 16% over the same period . However, the theme has dropped by about 7% since our last update in late August.

Data from the housing market lately has been somewhat mixed. Overall housing starts, an indicator of America’s new homebuilding activity, rose 3.9% to 1.615 million units in August. However, single-family starts, which represent the largest segment of the market, declined 2.8% from a seasonally adjusted rate of 1.076 million units. This is likely due to high material cost and labor shortage. That said, demand is likely to remain strong in the near-to-medium term, driven by a strong economy and favorable employment and wage trends. Furthermore, mortgage rates remain near multi-year lows, despite modest increases in recent weeks.

within our subject, Floor & Decor Holdings (FND), a company specializing in hard surface flooring and related accessories, has been the strongest performer, with its stock up nearly 28% year-over-year. On the other hand, installed building products (IBP), an installation contractor for insulation for residential and commercial projects, has been the weakest performer, with its stock rising nearly 7% year-over-year.

[8/26/2021] The US Housing Market Is Cooling, But Housing Stocks Still Worth Considering

our subject housing stock That includes stocks from home builders, building products companies and home improvement players, well ahead of the S&P 500, which is up nearly 19% over the same period. The theme has returned a solid 73% since the end of 2019, up nearly 38% for the S&P 500. However, there are some signs that the booming housing market is cooling off.

For example, housing starts, an indicator of US new home building activity, declined 7% in July compared to June, after two consecutive months of gains, at a seasonally adjusted annual rate of 1.534 million. In addition, the average price of existing homes for July also declined by about 1% month-on-month to approximately $359,900. Inflationary pressures for construction materials, land and labor also remain a cause of concern for builders. The number of homes that were authorized for construction last month but not yet commissioned also remained high, indicating that builders are hesitant to take on new projects.

However, there are some trends that can help the market in the long run. The spread of the highly contagious delta variant has led to a more than 2.5-fold increase in daily Covid-19 cases in the past month and is likely to delay the return of many companies’ office plans. The recent rise in COVID-19 comes despite strong vaccination rates across the United States and is a sign that COVID-19 may persist. This should augur well for the trend of working from home and increase the demand for more spacious homes. In addition, home buying appears to be changing, as well, with millennials – who are the largest generation group in America – increasing interest in buying homes. This could boost home sales in the coming years.

While our theme stocks outperformed, Lenar (LEN) Has been the strongest performer, growing 42% year-on-year. On the other hand, Home Depot (HD) It has been the weakest performer, with its stock rising 22% year-over-year.

[7/26/2021] Should Strong Earnings and Rising Construction Activity Buy Housing Stocks?

our subject housing stock That includes stocks from home builders, building products companies and home improvement players, continuing to do well, rising nearly 27% year-over-year, well ahead of the S&P 500, which gained nearly 17% over the same period. .

While the outperformance comes on the back of increased demand for more spacious homes in the suburbs through Covid-19 and lower mortgage rates, there have been some other positive developments for the industry recently. Last week, DR Horton, one of the largest homebuilders, published a stronger-than-expected set of earnings for Q3 FY2011, indicating that things were going well for the sector. While revenue grew 35.4% year-over-year to $7.3 billion, EPS grew 78%. Separately, new home construction activity also picked up in June, with the seasonally adjusted annual rate of housing starting at 6.3% from May and up about 30% over the previous year. That being said, there are concerns too. With higher levels of vaccine coverage, companies could start recalling workers to offices in cities later this year, and that could hit demand for homes in the suburbs. Homes can become increasingly out of reach for many people due to rising prices. Besides, builders are grappling with shortage of construction material, land and labor and rising prices and this may put some pressure on margins.

within our theme Dr. Horton (DHI) has been the strongest performer, with its stock rising nearly 36% year-over-year. On the other hand, Established Building Products (IBP) A relative laggard, its stock has gained 16% year-over-year.

[6/28/2021] Are cracks starting to show in the housing market?

our subject housing stock That includes stocks from home builders, building products companies and home improvement players, up 21% year-over-year, ahead of the S&P 500 which is up about 15% over the same period. The outperformance comes on the back of increased demand for larger homes through the pandemic and rock-bottom mortgage rates. However, there are signs that the market may be cooling.

Based on data from the US Commerce Department, sales of new single-family homes in the US unexpectedly fell by -5.9% in the month of May, marking a one-year low of 769,000 units seasonally. The adjusted annual rate was The downside is likely to be on the back of higher domestic prices, somewhat tight supplies and rising raw material and labor costs. For perspective, the average new home price in the US has risen about 18% year-over-year to about $374,400.

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