TCN - Homebuilders: Shortages Everywhere

• Homebuilders - which emerged as unexpected leaders early in the pandemic - dipped into "bear market territory" in early October as supply chain headwinds, soaring home prices, and rising rates spooked investors.
• Record-low supply levels and robust single-family housing demand sent home prices soaring, discouraging potential buyers. Surging rents - and a desire for inflation-hedging assets - have again sparked recent demand.
• Homebuilders are selling homes as fast as they can be built, but that's not fast enough. Supply chain constraints have curtailed immediate upside, but may have prolonged the favorable cycle.
• Rising rates remain a risk factor, but may have silver linings if it can bring some "normalcy" back to home price appreciation trends. Importantly, unlike past cycles, shortages are a far bigger concern than excesses.
• Housing remains a deeply “unloved” sector despite the compelling long-term tailwinds at its back. Remarkably, homebuilders trade with single-digit forward P/E multiples despite their strong projected growth rates.

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