Zacks
The Zacks Analyst Blog Highlights: NVR, PulteGroup, Taylor Morrison and M/I
Zacks Equity Research

In This Article:

For Immediate Release

Chicago, IL –May 28, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: NVR, Inc. NVR, PulteGroup, Inc. PHM, Taylor Morrison Home Corp. TMHC and M/I Homes, Inc. MHO.

Here are highlights from Friday’s Analyst Blog:

Homebuilding Industry Poised to Pop

The trade war has sparked tensions for many, particularly those with exposure to tech. But there are a few areas that may even be benefiting from the current nervousness in the stock market.

The housing market is one such area. Despite regional variation in prices, weather, demand, and so on, there are some really big drivers that apply to the industry overall.

For one, this market is actually seeing some supply shortage because of a reduction in the number of homes built over the last 10 years. This was partly because of economic pressures and partly because millennials have been steering clear off the market, preferring to rent or stay at their parents. The other major reason has been the inability to make a decent profit in the affordable housing area, which has pushed homebuilders toward the “luxury” market.

Since millennials (an 80 million+ market, according to the Census Bureau) are now showing some tendency to set up homes, demand is likely to pick up, which will lead to higher volumes that could allow profitability again at the low end.

In the meantime, the supply shortage has led to a huge increase in home prices that is not commensurate with the increase in wages. In fact, experts like Lending Tree Chief Economist Tendayi Kapfidze says that the lack of affordable housing has pushed up home prices to 3X the increase in wages.

As a result, despite the fact that home buyers are living in the same homes for longer than they ever have before (11 years), they aren’t showing any desire to move. Therefore, the existing home sales market, which comprises 90% of the housing market, is actually showing a slight decline in sales.

So how does this tie in with the trade war?

Tensions in the stock market are leading more investors to the bond market, which in turn is lowering bond yields. The yield on the 10-year determines mortgage rates, which explains why they are at their lowest level in almost a year. Lower mortgage rates obviously make housing more affordable, which could attract the buyers waiting on the sidelines.

Conclusion

So we’re seeing pent-up demand because of demographics and mortgage rate-related affordability. Significantly higher demand is likely to encourage building at the low end (where there is shortage), which in turn will lead to profitability at home builders.

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