
Alex Pettee, CFA
Homebuilders: Growth At Very Reasonable Prices
Left for dead early in the pandemic, the U.S. housing industry has been a consistent, steady-handed leader throughout the pandemic. After a summer lull, the positive momentum has again accelerated.
Record-low supply levels and robust single-family housing demand remains a secular tailwind. Rental markets were a brief reprieve from cost-pressures, but soaring rent rates have pushed households back towards ownership.
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.
Profit margins have climbed to record highs as builders have more-than-offset cost pressures through higher sales prices. Scale remains a critical competitive advantage as the larger public builders continue to gain market share.
Growth At A Very Reasonable Price: Homebuilders remain an unloved sector, still trading at deep discounts to historical and market multiples - including mid-single-digit P/E ratios - despite double-digit earnings growth expected over the next several years.
