Home run for homebuilders

So much for a spike in mortgage rates and excessively high real estate prices slowing down the residential real estate market.

The housing market may have hit a bit of a speed bump in 2022 due to rising interest rates. But it looks like residential real estate is roaring again.

With inventory of existing homes still extremely tight, builders are beginning to ramp up construction of new ones. Housing starts surged 21.7% in May from April, according to the US government. Starts were also up 10.8% from a year ago.

That is undeniably good news for builders — and hopefully people still looking to buy a home who have struggled due to the small supply on the market…not to mention how quickly those properties have gotten scooped up in the buying frenzy.

Photo by Breno Assis on Unsplash

Shares of homebuilders Lennar, DR Horton, Pulte and NVR all hit new record highs Tuesday. So did the stocks of construction materials supplier Builders FirstSource, Beacon Roofing Supply and fiberglass/insulation giant Owens Corning. (Cue the Pink Panther theme song.)

Whether or not these stocks can maintain this momentum will depend on what happens next with housing. Will more rate hikes from the Federal Reserve, which has suggested that it’s not done fighting inflation just yet, put an end to the housing rebound? Perhaps. But for the time being, investors (and industry participants) are betting that builders can continue to thrive for the foreseeable future.

Lennar executive chairman Stuart Miller said in the company’s better than expected earnings report last week that “we continued to see the housing market normalize and recover from the Fed's 2022 aggressive interest rate hikes in response to elevated inflation” and added that “as consumers have come to accept a ‘new normal’ range for interest rates, demand has accelerated, leaving the market to reconcile the chronic supply shortage derived from over a decade of production deficits. “

“Simply put, America needs more housing," Miller said.