Homebuilders Surge On Strong Earnings

Good article here from Hoya Capitol Real Estate, lots of charts and a bull/bear analysis.

The homebuilder sector is on pace for its best week in several years after strong earnings from DR Horton.

For DRH, the largest homebuilder, orders increased nearly 15% and average selling price rose 2%. December homebuilder confidence is at 11 year highs on post-election optimism.

Home prices have continued to appreciate at a robust rate while inventory levels of homes for sale continued to dip to multi-decade lows. Affordability, though, is becoming an issue.

We highlight several important macroeconomic trends, including demographics and buy/rent economics, that may provide a tailwind to the sector over the coming decade.

We also note reasons to be cautious. Higher mortgage rates, affordability issues, and permanently impaired opinions of homeownership may continue the trend of “renter nation”…


…Bear Case for Homebuilders

At this point, it may seem like homebuilders are a slam-dunk. But, there is reason to be cautious about the industry. We identify five trends that should raise concern for investors: home price affordability, permanently impaired opinions of homeownership, construction price inflation, high levels of student debt, and continuation of tight credit standards.

Below, Freddie Mac surveyed three housing economists to opine on the “Drivers of Homeownership.” Opinions are mixed, but the consensus is that there are significant impediments that are causing a long-term sustained decline in the willingness or ability to own a home…