I’ve Got My Eyes on Homebuilders – and You Should Too

[Wide Moat Daily]( I’ve Got My Eyes on Homebuilders – and You Should Too By Brad Thomas, Editor, Wide Moat Daily If you’re trying to buy a home right now… best of luck to you. When I last checked Bankrate data on Tuesday, the traditional average 30-year fixed rate sat at 6.40%. That’s not nearly as bad as the 7.89% we saw last October, of course; but it’s also up 14 basis points since last Tuesday. And it’s more than doubled from the pandemic era when a 30-year could be had for under 3%. But mortgage rates aside, there’s another reason why buying a home has been such a headache in recent years. Put very simply, there aren’t enough of them. Here’s what I told readers in our most recent issue of The Wide Moat Letter: Zillow found [earlier this year] that the U.S. is short by 4.5 million homes. And the problem is only getting worse. The Zillow study was looking at 2022 data and showed that families in the U.S. increased by 1.8 million. However, only 1.4 million new homes were built. Now, apartments fill some of that void. A large part of it, in fact. And there are many other people who are living with family members to cut down on costs. Yet there are scores of homebuyer wannabes still looking. Looking and not finding. CNBC published a piece a few weeks ago about a young married couple who made “15 offers, went $65,000 over asking price, and still got rejected.” That was last year. They’ve since given up. “We both make good money,” Kelcie Lesko explained today. “We both have good jobs. We’ve both done the right things to prepare us to become homeowners.” Yet they and so many others have realized they’re flat out of luck in this department. And, sorry to say, they might stay that way a while longer. For investors, however, there is a silver lining – one that could turn to pure gold before long. A Topic Even Trump and Harris Agree On Everyone recognizes we have a housing shortage. And I do mean everyone. You can’t even get Donald Trump and Kamala Harris to disagree on it – and they disagree on just about everything else. In last month’s presidential debate, Harris flat-out said, “We know that we have a shortage of homes and housing.” That’s why she pledged to “work with the private sector and homebuilders to increase [the housing supply] by 3 million homes” by the end of 2028 if elected. Trump, meanwhile, spoke on the subject to the Economic Club of New York. Part of his pledge is to “open up portions of federal land for large-scale housing construction.” They both know how serious the situation is – and how frustrated Americans are with the status quo. But the situation is even more dire than the numbers indicate. Here’s what I said in the most recent issue of The Wide Moat Letter: Just because a house is for sale doesn’t mean that someone is going to buy it… If I had to guess, I’d say that there are probably hundreds of thousands of homes for sale right now that no one wants to buy. They’re old. They’re dilapidated. And they’re in isolated, relatively low-quality-of-life areas. Yet they’re still technically on the market, making it seem as if there’s more stock available than actually exists. Since I’ve already brought up politics in this section, let me wade into those waters further… Immigration is compounding the housing crisis even further, regardless of whether it’s through our current “open borders” policy or expanded Visa programs. The Council on Foreign Relations reported last month that: In [fiscal year] 2023, the United States granted more than 265,000 visas for high-skilled workers… known as H1B visas, and over 310,000 visas for temporary workers in agriculture and other industries, or H2A visas. That’s more than half a million accommodations necessary right there. Not to mention how “Immigrants made up 18.6% of the U.S. civilian workforce… in 2023, according to the Bureau of Labor Statistics, up from 18.1% the previous year.” We can argue ‘til the cows come home whether that’s an ultimate net positive or negative for the country. But one fact is absolutely indisputable… The more people we have looking for housing, the less housing we have to go around. And we have a lot of people looking right now. Homebuilders Are in High Demand Really, I cannot overstate that this country needs to see more houses come to market. Fortunately, there is a group of businesses working very hard to make that happen. By this, I mean homebuilders. Naturally. The market has certainly figured it out. The homebuilders segment – as measured by the SPDR S&P Homebuilders Fund (XHB) – is up 64% in the past year. After such a run, you might think the homebuilders need a “cooling off.” But that’s not necessarily the case. One of the big reasons for homebuilders’ success is the “lock-in effect.” Put simply, current homeowners have been reluctant to sell if it means giving up their low mortgage rates. After all, once you sell your house, you’d have to find another to buy. More than half of outstanding mortgages are financed below 4%. And with 30-years still above 6%, there’s absolutely no incentive to sell and move. The result has been limited existing homes on the market. And the homebuilders were left to pick up the slack. With mortgage rates on the decline, it’s possible – even likely – that existing homeowners will finally be enticed to sell their property. But at a national average between 6% and 7%, we’re a long way off from seeing mortgages fall below the important 4% threshold. And even with existing properties coming to market, the housing shortage is such that there should be durable, years-long demand for the homebuilders. The homebuilders have had one heck of a run… and I don’t think it’s over yet. And for any interested readers, here are the names I’m keeping an eye on. Keep in mind, these are not active recommendations. But they are intriguing possibilities to learn more about. You might be surprised, however, to hear that my favorite company tied to this trend isn’t a homebuilder at all. At least not in the traditional sense. Paid-up subscribers to The Wide Moat Letter can catch up [right here](. Regards, Brad Thomas Editor, Wide Moat Letter [Wide Moat Research]( Wide Moat Research 1125 N Charles St, Baltimore, MD 21201 [www.widemoatresearch.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. Wide Moat Research welcomes your feedback and questions. 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