• Alex Pettee, CFA

Homebuilders: Shortages Everywhere

  • 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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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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