Despite construction starts, mortgage applications, and existing home sale data suggesting the housing market is cooling, investors are remaining bullish toward the home building industry. Since the start of the third quarter, the S&P Supercomposite Homebuilders Index has risen nearly 17%, outperforming the S&P’s 13% increase during the same period. Many investors view the housing slowdown as a return to normalcy from record-high housing numbers, according to a Bloomberg article.
Construction starts fell in July to the slowest pace since early 2021, with residential starts dropping by nearly 10% to a 1.45 million annualized rate, according to government data released Tuesday. Despite the gloomy results, investors see a silver lining.
“If you look at the housing data we saw in starts, the month we just produced was the average of 2020 including the pandemic -- it would have been the best month of any month from 2009 to 2019,” said Cole Smead, president of Smead Capital Management. “Return on equity is going to stay higher even with a pullback.”
Despite record inflation and tighter monetary policy sparking concerns of an impending US recession, investors say the housing market is not heading into a 2008-like collapse.
“I just don’t see this being anywhere near a GFC situation,” Tom Shapiro, president of GTIS Partners, which has investments in roughly 80 home building projects across the country, said. “We just don’t have the supply we had.”
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