With rates rising, and the 30year mortgage rates shooting up over the past month, the homebuilders have been under pressure.
The idea is obviously that it will get too expensive for people to buy homes.
With inflation surging, people will also be pressured in terms of other expenses, i.e., most of their income will go towards basic necessities and it will be more challenging to accommodate higher mortgage payments.
Nevertheless, when I looked at the industry sometime last year, asset prices where going up not only because of the stimulus (and people having more money) but more because there was a genuine shortage of housing in the US market.
After the Great Financial Crisis in 2008, and the collapse in the US housing market, the level of investment in housing reduced significantly. It took some time for the market to recover, obviously. And that's left the market with fewer homes that required.
Demand, on the hand, has been increasing because of the increase in the Millennial population who are now becoming first time home buyers. This has been further exacerbated by:
- Low Mortgage Costs
- Overall increase in spending power because of savings in other areas
- Work From Home - leading people to either buy second homes or move to the suburbs since they can work anywhere
- The Great Resignation - People quitting their jobs and moving out of busy towns and apartment
This has pushed home prices to new highs.
For the longest time I held
$NAIL, and made a decent return on it. Sold out earlier this year as it started to retreat. But, I do want to go long one of these three homebuilders (or all three) once I feel the market has settled a bit. All three have EV/EBITDA below 5x and LTM P/E multiples below 7x.