As of August 2024, shareholder returns for major homebuilders D.R. Horton and Lennar have surpassed the performance of the S&P 500. Despite this, analysts have recently downgraded the investment outlook for both companies. However, there is still a sense of optimism among some investors regarding the future performance of the industry.
Industry observers note that the market positions of leading homebuilders have strengthened significantly since the 2007-2008 financial crisis. Stimulus packages in the early 2010s provided these companies with a substantial liquidity boost, allowing them to utilize these resources to their advantage.
Luis Quintero, a faculty member at Johns Hopkins University Carey School of Business, suggests that lower levels of competition among homebuilders could be contributing to the housing shortage in the U.S. The country is facing a shortage of anywhere from 2 million to 20 million housing units, according to estimates by experts in the field.
The permit approval process, particularly in areas with restrictive zoning laws, has been identified as a factor that can slow down residential projects. Margaret Whelan, CEO of Whelan Advisory, highlights how areas with more open land and looser regulations are experiencing higher levels of home sales compared to regions with stricter zoning laws.
The housing market has been affected by elevated mortgage rates and rapid home price inflation, making it challenging for many potential buyers to enter the market. This has resulted in a decrease in permits and starts for new residential projects compared to the peak levels seen in 2021.
Vice President Kamala Harris and former President Donald Trump have presented differing views on zoning reform, which could influence the pace of residential construction. Harris has advocated for relaxing restrictive zoning laws to increase the number of permits issued for new construction, while Trump has criticized the Biden administration’s efforts to introduce denser housing forms in suburban areas.
Former President Trump has highlighted the difficulties faced by young people in securing financing to purchase a home, amidst the current inflation situation. Addressing these challenges will be crucial in ensuring the stability and growth of the housing market in the coming years.
While the future of homebuilders like D.R. Horton and Lennar may face challenges such as changing market conditions, policy shifts, and housing shortages, there is still room for growth and innovation in the industry. By addressing key issues such as competition, zoning laws, and affordability, homebuilders can navigate the evolving landscape of the housing market and continue to provide valuable housing solutions for consumers.