After years of rolling with the punches, many builders finally felt some relief in 2019. Low mortgage rates, manageable resource prices, and high demand sparked renewed hope for the housing market. But we’re not out of the woods yet. Homebuilding isn’t blowing it out of the water in the stock market, and builders are still trying to figure out the best way to transition to the high-demand entry-level market. Overall, 2019 marked a positive shift in the industry, but builders should still come out swinging in 2020 to stay ahead.
In our Real Estate Rankings series, we analyze companies within each of the commercial and residential sectors, focusing on property-level fundamentals and the macroeconomic forces driving overall supply and demand conditions. We then analyze these firms based on both common and unique valuation metrics, presenting investors with numerous options that fit their own investing style and risk/return objectives.
Homebuilding Sector Overview
In the Hoya Capital Homebuilder Index, we track the 15 largest homebuilders, which account for roughly $80 billion in market value: D.R. Horton (DHI), Lennar (LEN), NVR (NVR), PulteGroup (PHM), Toll Brothers (TOL), KB Home (KBH), Taylor Morrison (TMHC), MDC Holdings (MDC), Meritage Homes (MTH), M/I Homes (MHO), TRI Pointe (TPH), Century Communities (CSS), William Lyon (WLH), Beazer Homes (BZH), and New Home Company (NWHM). Together, these 15 firms will have constructed approximately 200,000 homes in 2019, accounting for roughly a quarter of total single-family deliveries this year. Below we note the regional and price-segment focus of each of these 15 builders.
While single-family homebuilding ETFs including the SPDR S&P Homebuilders ETF (XHB) and the iShares Home Construction ETF (ITB) are sometimes viewed as a proxy for the entire US housing market, single-family builders account for only around 15% of total housing-related spending in the average year, as tracked by the Hoya Capital US Housing Index. While a small number of single-family builders including Lennar have made investments towards multifamily development in recent years, these builders remain almost exclusively focused on single-family development. Similar to the commercial REIT sector, due to the high degree of private ownership of assets and companies within the industry, homebuilders represent just a tiny slice of typical broad-based equity indexes relative to their total economic impact