Can Warren Buffett's Q2 Bet on US Housing Market Still Prove Bullish Despite Homebuilder Stocks Decline?

Analysts Notebook wrote a column · Sep 19, 2023 15:17

Berkshire reported last month that, during Q2, it opened new positions in S&P 500 stocks $Lennar Corp (LEN.US)$, $D.R. Horton (DHI.US)$ and $NVR Inc (NVR.US)$ worth a total of more than $800 million. Warren Buffett-backed Lennar reported better-than-expected fiscal Q3 earnings and revenue due to increased home deliveries amidst a hot new-home housing market.

However, homebuilder stocks fell recently despite the positive results. Analysts were surprised that Lennar Q3 profits decreased less than predicted. The broader homebuilder stock group is at a critical point as the industry rallied in the first half of 2023 when rising interest rates slowed sales of existing homes and drove up prices and demand for newly built homes.

Source: moomoo

Deteriorated Homebuilder Confidence

The US home builder confidence has decreased for the second consecutive month in September, with the National Association of Home Builders/Wells Fargo index dropping to 45, compared to a reading of 50 in August.

High interest rates have caused affordability issues for potential buyers, leading to lower optimism among builders. Furthermore, there has been a decrease in the traffic of prospective buyers.

Source: National Association of Home Builders

High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower," said NAHB Chief Economist Robert Dietz.

Putting into place policies that will allow builders to increase the housing supply is the best remedy to ease the nation's housing affordability crisis and curb shelter inflation," he added. "Shelter inflation posted a 7.3% year-over-year gain in August, compared to an overall 3.7% consumer inflation reading."

U.S. Housing Market Outlooks

The big picture in the U.S. is that of a long-term housing shortage. The construction of new homes has not kept pace with the growing population. Rising material costs, supply-chain issues and labor shortages since the Covid pandemic have exacerbated the issue.

The shortage is currently running at a deficit of about 5.5 million homes, according to the National Association of Realtors (NAR). The gap is so large it would take more than a decade to close, NAR says, even if new-home construction accelerates.

That points to a bullish long-term view for homebuilders. Warren Buffett backed that view with Berkshire's Q2 bets on the U.S. housing market.

Mooers, do you think the rally of homebuilder stocks could resume?

Source: CNBC, REUTERS, RTTNews, Investors

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more

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