Homebuilders find themselves in a good spot, for now

Shortage of existing inventory fueling demand for new homes

D.R. Horton's David Auld (Getty, D.R. Horton)
D.R. Horton's David Auld (Getty, D.R. Horton)

A lack of inventory isn’t doing buyers any favors in the housing market, but it is proving to be a boon for homebuilders.

In fact, business is better than expected, the Wall Street Journal reported. Homebuilders have become the beneficiaries of softening mortgage rates and an ongoing lack of homes for sale.

In March, newly built homes accounted for a third of single-family homes on the market, according to data from the National Association of Realtors and the Commerce Department. That share was even higher in December, when it hit a four-decade high of 35 percent. Normally, the share is somewhere between 10 and 20 percent.

Stocks in the sector are surging, too. The S&P Homebuilders Select Industry stock index is up 16.5 percent year-to-date, easily outpacing the 7.3 percent gain made by the S&P 500. D.R. Horton, Lennar and PulteGroup are all up at least 20 percent year-to-date; PulteGroup is up 44 percent.

For D.R. Horton, net sales orders in March fell 5 percent year-over-year. That drop was actually better than expected and orders rose 73 percent from the previous quarter.

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Homebuilders have been on a roller coaster ride over the past three years. They started constructing rapidly to keep up with the housing boom, only to be beset by supply chain issues and labor shortages. After being unable to keep up with demand, last year’s mortgage rate surge suddenly left them with homes they couldn’t sell, forcing them to offer incentives to clear backlogs.

Their fortunes appear to have turned, though. In March, single-family housing starts rose 2.7 percent from the previous month on a seasonally adjusted basis. The only region where starts fell from the previous month was the West.

The good times may not last. A possible recession and broader economic concerns continue to loom. Those concerns have been amplified by the fragile state of the banking sector. A recession would likely have a devastating impact on the housing market. But even just another spike in mortgage rates could crash the party for homebuilders.

Holden Walter-Warner

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