Homebuilders - which emerged as unexpected leaders early in the pandemic - dipped into "bear market territory" in early October as supply chain headwinds, soaring home prices, and rising rates spooked investors.
Record-low supply levels and robust single-family housing demand sent home prices soaring, discouraging potential buyers. Surging rents - and a desire for inflation-hedging assets - have again sparked recent demand.
Homebuilders are selling homes as fast as they can be built, but that's not fast enough. Supply chain constraints have curtailed immediate upside, but may have prolonged the favorable cycle.
Rising rates remain a risk factor, but may have silver linings if it can bring some "normalcy" back to home price appreciation trends. Importantly, unlike past cycles, shortages are a far bigger concern than excesses.
Housing remains a deeply “unloved” sector despite the compelling long-term tailwinds at its back. Remarkably, homebuilders trade with single-digit forward P/E multiples despite their strong projected growth rates.
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