Alex Pettee, CFA
Homebuilders: Relief Has Arrived
After their worst year since the financial crisis, homebuilders were left for dead in late 2018. The sector has roared back to life in 2019, powered by receding mortgage rates.
Perhaps an echo of 2013, rising rates significantly slowed the single family markets to near-zero growth in 2018. Housing data - starts, sales, and prices - all softened considerably late last year.
The homeownership rate climbed to a four-year high in the fourth quarter of 2018 despite continued affordability challenges. Demographics in the 2020s are highly favorable for continued household formation growth.
The ten largest homebuilders accounted for a quarter of all home construction in the US in 2018. Homebuilding economics remain brutally challenging for all but the most operationally efficient builders.
By most metrics, the overall US housing markets remain significantly undersupplied, an imbalance that further widened in 2018. Supply growth is the most effective antidote for rising housing costs.