A Decade of Underbuilding Has Created a Homebuilding Boom
This weekend, when I went online to read the latest monthly issue of Barron’s, I was greeted with this headline: “The Housing Boom Could Last for a Decade. Buy These Stocks.”
I laughed to myself for a moment and thought, “Tell us something we don’t already know.”
We’ve been profiting from this trade here at Wealthy Retirement for the past 18 months!
More Than a Decade of Underbuilding Created This Opportunity
The Barron’s article contained the same table-pounding bullish thesis for homebuilders that I first laid out more than 18 months ago in May 2020.
I noted how new housing construction has plummeted to a 60-year low, largely due to an industrywide overcorrection in response to the housing crash of 2008.
This has led to a shortage of homes that is quickly becoming a crisis in its own right.
And this is bullish for homebuilders… STILL.
Now, 18 months after I pointed as much out, homebuilding stocks are performing well.
As a group, they have more than doubled the strong performance of the S&P 500 Index.
The SPDR S&P Homebuilders ETF (NYSE: XHB) is now up more than 132% since we identified the opportunity.
But as Barron’s so carefully laid out in its recent homebuilding article, these stocks still have plenty of room to run.
As I mentioned, the industry went through more than a decade of underbuilding.
It’s going to take a decade of elevated levels of building to fill the housing shortage.
This is a long-term tailwind behind these companies.
Yet, despite having terrific long-term prospects, these stocks are still incredibly cheap.
While the entire S&P 500 trades at more than 20 times next year’s earnings, the biggest and best homebuilders are trading at around five to seven times next year’s earnings.
These stocks should not trade at one-third the valuation of the overall market given the tailwind behind them.
This homebuilder trade has been good to us, but it isn’t done.
There is nothing better than being positioned in a sector that has years of unusually high growth ahead of it.
Just buy and sit tight for the long term. Oh, and laugh the next time Barron’s trails our calls by 18 months.
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