RDFN - Homebuilders: This Time Was Different

• To the surprise of countless pundits and experts, the U.S. housing industry has assumed a very different role during this economic crisis, serving as the unexpected leader throughout the early recovery.
• A confluence of near-term positive factors and long-term tailwinds converged over the last eight months that have generated a highly favorable environment for the U.S. housing industry.
• Homebuilders have been at the heart of this rebound, capitalizing on record-setting homebuying demand. However, builders are struggling to keep-up as inventory levels declined to record-lows while the backlog swells.
• While policymakers have prioritized support for the critical U.S. housing markets throughout the COVID crisis and long-term tailwinds remain compelling, we believe that an unexpected rise in interest rates is the primary risk factor for builders.
• 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 stellar projected growth rates.

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