• Alex Pettee, CFA

Homebuilders: It's A Buyer's Market

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  • Homebuilders had their backs against the wall in 2018 as a myriad of headwinds looked certain to derail the grinding post-recession recovery, sending the sector lower by 30% last year.

  • Homebuilders were squeezed from both sides as rising mortgage rates forced homebuilders to cut prices while surging construction costs squeezed their already-razor-thin operating margins.

  • The winds have shifted rather dramatically over the last five months as these headwinds have become favorable tailwinds. Unaffordability issues have been temporarily allayed by the plunge in mortgage rates.

  • Rising wages powered the best year for household formation growth since 1985. Demographics become favorable for single family markets in the 2020s, though entry-level households may favor single family rentals.

  • Homebuyers appear to have a short window of opportunity. Home price appreciation has moderated, but housing data is forecast to gain steam throughout 2019 if rates remain this low.



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