With Builders Feeling Hopeful, These Stocks Might Be At Home In Your Portfolio

With Builders Feeling Hopeful, These Stocks Might Be At Home In Your Portfolio
Paul Allison, CFA

7 months ago2 mins

The housing market’s a big deal for the economy. Remember, the US economy is mostly driven by consumer spending, and how folks feel about their homes – their biggest assets – can dictate the way they spend and save cash.

The chart plots the National Association Of Home Builders (NAHB) and Wells Fargo’s housing market index, showing how building firms across the country perceive the state of both current and future home sales, based on prospective buyer activity. A reading above 50 indicates that more builders feel positive than negative, and below 50 means more are negative. And get this: the index moved back to 50 in May for the first time since July 2022. That means consumers are feeling chirpy enough to start sniffing around potential new home purchases, which should be a good sign for future house prices.

You could take advantage of that. Now, companies that actually build homes would naturally benefit from more demand, but their stocks have already been, ahem, hitting the roof. Case in point: the iShares US Home Construction ETF (ticker: ITB; expense ratio: 0.39%) is up 26% so far this year, so you might’ve missed the early-bird boat there. Strangely, though, home improvement stocks Home Depot and Lowe’s are lagging behind. After posting weak results on Tuesday, Home Depot’s now down 10% this year. The company does have a few near-term challenges to work through, namely sagging near-term sales, and there’s always the risk that a nasty recession could take a shark-sized bite out of the housing market. But looking further into the future, Home Depot’s prospects could still be solid, and its stock may not be reflecting that just yet.

After all, the housing market does seem to be built on solid foundations. Americans own a respectable chunk of their homes: according to property research firm ATTOM, nearly 40% of US homeowners have no mortgage at all and another 30% are borrowing less than half of the value of their home. That’s a pretty healthy backdrop, and according to Home Depot, that matters more than the amount of buying and selling going on – although a pick-up there wouldn’t exactly hurt.

So if you’re ready to lay some foundations in the housing market, and if you have a fairly long time horizon, home improvement firms like Home Depot may well be a solid option.



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