Homebuilders

After hitting low on June 17th, the group is rallying. Today’s DHI news resulted in small sell off (2%). I think it is time to consider buying the dips on this name. Fundamentally very strong, balance sheet are strong, after the GFC the group got extremely disciplined, land investments were controlled, spec houses were controlled. IN fact, the new home building is below the household formation ever since. The industry has lots of tailwinds.

MY favorite names are TOL, PHM, both expected to earn over $10 per share. Toll caters to luxury and has decent land inventory (land that is acquired before COVID). PHM has been steadily buying back shares.

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From the time I posted to now, there is 5% swing. WOW, I have powers to move the market.

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So far the June low’s are holding. FED will announce another hike, but there is an expectation they may announce stepping down from .75% hike to 0.5% hike for future. Don’t know whether they will do it, but expect that will provide some support to this group. For now, still June low’s seems to be support.

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TOL and purple line is PHM. Right when the stock had the breakout I sold. I am trying to think why I did that, I could not recollect. It is important to have a journal, so that you don’t get out of your favorite name.

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Magical things happened to many stocks on Oct 27. The latest inflation numbers made people believe interest rates have peaked and may begin to fall one of these days.

Will it last? Will it happen? Don’t hold your breath. Maybe this time next year. Before the election?

I’m amazed that these stocks have done so well while everyone expected a recession. Don’t you think home buyers will slow down when unemployment rises? Not to mention rising interest rates.

One of my original thesis on Homebuilders is there is a secular trend. The average age of US homes are 41. Separately, post 2008 home building is actually trailing household formation and millennials household formation (i.e., people getting married and starting family) itself is below long-term trends. The existing home owners are locked into their houses with low mortgage rate. So, the home builders who primarily focus on building new homes are in a unique spot with significant secular tailwind.

In fact this thesis is behind my Timber REIT’s, HD & LOW, apartment REIT’s, etc.

Inflation looks like it has peaked. Can it go up from the current level, may be, but we have decent growth ahead with inflation coming down and real rates coming down. I think you should assign a probability for this “good scenario”. Meaning, don’t get caught in a situation where the market is going up without you.

I agree the prospects for better stock prices from here are favorable–especially if you are a long term investor.

Ie, maybe we can agree that interest rates have peaked. But don’t be surprised if the feds decide to disagree. Bad news can make for another dip.

Yes, interest rates seem more likely to drift downward from here rather than rise some more. But timing is definitely uncertain. Probably not soon.

And the wind may blow the other direction at any time. Definitely not cast in concrete.

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While I expect interest rates to come down, I don’t think that is actually needed for the stock market to do well.

This pessimism is the reason I think we are going to continue to rally. Bull markets don’t die of old age or when there is widespread pessimism. Rather they die on euphoria.

I have discussed about market performance here, where you can see my reasons behind why an investor should be bullish. I am skeptical in nature, but I have to keep reminding myself to be optimistic. :slight_smile:

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They continue to tell us that the big driver is interest rates because the pros have computer models that base future funds for growth stocks on interest rates. Every change in interest rates cause then to adjust the value of all their stocks.

Yes, Mr. Market is much less sophisticated than that and can do all kinds of stuff when it wants to. Euphoria or not.

There is an element of risk there. It does not go away.

The way I read this graph is markets have moved up even when 10 yr yield is above 5%. Post GFC ZIRP regime is an outlier not normal is my view.