Will home builders be able to take advantage of the slow climb uphill in the recovery of the housing market?
Certainly, a valid question and definitely one that you must explore if you’re a builder.
There is a definite up trend taking place with the national builders. Over the past year, homebuilder stocks have risen 80%. That’s at least five times the S&P 500 indexes for the stock market.
What is happening is being fueled by low interest rates, a dwindling supply of homes that now represents only a five-months supply versus the 11-month supply of a year ago. Under these circumstances, it is reasonable to expect this trend to continue.
Nevertheless, what about the small local builder?
If you look behind the fog of economic recovery, low interest rates make affordable homes more attractive to younger buyers. Let me explain.
If you’re a young couple, say between 25 to 38 years of age, both fortunate to be working, presently renting, owning a home is becoming extremely attractive for this simple reason. With low interest rates, a starter home with a price tag of $125,000 to $150,000 is cheaper than rent. If they are even close in the same amount, it makes good sense to own over renting.
For the local builder, this is your emerging market.