KB Home, Floor & Decor: Actions to play on the booming housing market

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Our theme of Housing stocks which includes shares of home builders, construction product companies and home improvement players has risen 24% so far in 2021, significantly outperforming the S&P 500, which is up around 7% over the same period. House prices have skyrocketed, with the median US home price hitting about $ 313,000 in February, up 15.8% year over year. There are a few factors driving the surge, including increased demand for larger homes and homes in the suburbs, as more people have the flexibility to work and learn from home after Covid-19. Mortgage rates also remain very low from historical levels (the 30-year fixed-rate mortgage stood at around 3.2%) although they have risen slightly in recent weeks, alongside yields on US bonds. Higher treasury. Housing inventories have also been limited, due to the slowdown in housing starts linked to Covid-19, extremely cold weather in parts of the United States and the reluctance of existing owners to list homes. In our theme, the top performer this year was KB Home (KBH) – a Los Angeles-based home builder that focuses on homes for first-time homebuyers. The stock is up about 43% year-to-date. On the other hand, Floor & Decor Holdings (FND), a specialty hard flooring retailer, was the weakest with its inventory rising around 6% year-to-date.

[11/16/2020] Housing stocks

Our indicative theme of Housing stocks is up 25% year-to-date, compared to 11% for the S&P 500, as the housing market continues to thrive, despite the surge in coronavirus cases. In the third quarter, the median price of a single-family home in the United States is up 12% from a year ago to $ 313,500, according to the National Association of Realtors. There are multiple trends behind prices. First, people are spending more time at home as they work and learn remotely, leading to increased demand for larger homes and homes in the suburbs. Second, the supply of new homes available for purchase is also low, possibly due to the pandemic slowing construction. More importantly, mortgage rates also remain at their lowest level in 50 years, with 30-year fixed-rate mortgage rates currently standing at around 2.8%. [1] The strength of the housing market should bode well for home builders as well as other businesses directly exposed to the housing market. Below you will find a little more information about the companies in our Housing stocks theme.

Installed Building Products (NYSE: IBP) is a company that installs residential building products and other complementary building products. The stock is up 41% this year.

DR Horton (NYSE: DHI) is the largest homebuilder by volume in the United States, primarily focusing on more entry-level homes. The stock is up 39% year-to-date.

Lennar (NYSE: LEN) is one of the largest home builders in the United States in terms of consolidated sales. The company focuses on segments such as first-time homebuyers, first-time buyers, and working adults (typically over the age of 55). The stock is up 36% year-to-date.

PulteGroup (NYSE: PHM), an Atlanta-based homebuilder, is the 3rd largest homebuilder in the United States based on the number of closed homes. The stock is up 11% year-to-date.

Los Angeles-based KB Home (NYSE: KBH) builds homes primarily for first-time homebuyers. The stock is down -1.6% year-to-date.

[7/2/2020] Stocks to play the housing recovery

The US real estate market has shown signs of recovery despite the coronavirus pandemic, with demand appearing to exceed supply as stocks remain tight. Pending home sales – a measure of contracts signed on existing homes – jumped 44% month-over-month in May and fell just 5% year-over-year, according to the National Association of Realtors, while the supply of existing homes was nearly 19% lower year after year. [1] Sales of new homes were also up 13% year over year in May. Do the improvement in demand and the limited supply therefore justify investing in housing stocks?

Although there are still considerable risks – given the uncertain direction of the health crisis and difficult unemployment figures – we have selected 5 stocks exposed to the real estate market – including DR Horton, Lennar
LEN
and KB Homes – which could offer an edge if the market continues to grow, while providing some level of downside protection if things get worse. These companies are reasonably large and well established (market capitalization over $ 2 billion), have experienced steadily increasing demand (consistent revenue growth over 3 years) with improved pricing power (increased margins of operation). In addition, these companies have a relatively manageable leverage effect. See our dashboard analysis 5 housing stocks that could outperform: DHI, LEN, KHB, PHM, IBP

What drives the housing market and what are the risks?

While the surge in demand is in part due to pent-up demand after the April lockdowns, lower interest rates were also a big driver. The 30-year mortgage rate is at its lowest in several years, currently standing at around 3%, down from around 4.8% in 2018, making home financing cheaper for people. On the other hand, the trend to work remotely could increase the demand for larger homes as people seek to expand. People living in cities and more densely populated areas might also choose to move to the suburbs, which boosted demand for single-family homes. That said, the long-term picture is still somewhat fluid. Unemployment is still at multi-year highs, economic growth is expected to decline to double digits in the second quarter, and daily cases of the coronavirus have also reached new highs in the past week, meaning the worst of the crisis sanitation is perhaps far from over. This might make people more wary about making large, long-term commitments like buying a new home.

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