1 Homebuilder to Buy for the Long Term
An unwelcome combination of major supply chain challenges and rising mortgage rates have derailed the stocks of homebuilders like Lennar Corporation (NYSE: LEN) (NYSE: LEN.B) in 2022. Periods where mortgage rates are rising have historically been bad for homebuilders as it makes homeownership more expensive and therefore dampens demand. Lennar is down 30% from its 52-week high.
While these are indeed serious headwinds, the drastic undersupply of housing in the United States and demand for housing from new and first-time homebuyers like millennials and zoomers are long-term growth drivers for homebuilders. Investors are well served by seeing past short-term challenges to take advantage of long-term secular trends, and this looks like one of those situations.
Most readers probably have a friend or relative who is house hunting and has horror stories about traipsing to dozens of open-houses and putting in offer after offer only to be outbid by one of the scores of other would-be buyers. Many readers may even be experiencing this tight market themselves. It's not just anecdotal; the data shows that there just aren't enough houses right now for everyone who would like to buy one. In late 2021, a Realtor.com study found that the United States was short a whopping 5 million homes as 12.3 million new households were formed over the past decade, but only 7 million houses were built in that time . Even worse for would-be buyers, the study shows that the supply gap is increasing over time. The National Association of Realtors says that 1.9 million people who want to buy a home will be shut out of the market this year. With demand high and existing homes not coming on to the market at a fast enough pace, new builds from Lennar and its peers are going to be as much in need as ever.
Source Fool.com