US Housing stocks: winners and losers

With the pandemic forcing many people staying confined in their living spaces, homeowners, homebuyers, and homebuilders have each been impacted in different ways. Below we look at how the different segments of the US Housing markets are performing in this context.

US Homeowners are struggling

US Homeowners is probably the segment which has been the most negatively impacted by the Covid Pandemic crisis. With the unemployment rate still in the double digits, fewer homeowners are able to meet their mortgage payments. Residential mortgage delinquency rates posted their largest-ever quarterly increase in Q2, according to the Mortgage Bankers Association, jumping to over 8%.


It is thus no surprise to see that the iShares Residential Real Estate ETF (REZ) has recovered less than half of the price decline triggered by the pandemic.

Chart: iShares Residential Real Estate ETF (REZ) - source: 



The recovery of this segment of the market remains dependent on the health of the US job market.



A mixed picture for homebuilders

US homebuilders have been doing much better over the recent months. Indeed, an index measuring homebuilder sentiment matched its highest level ever yesterday.
There is indeed a healthy amount of demand from buyers and not enough home supply to meet it.

Moreover, the 30-year fixed mortgage rate bottomed out at 2.88% in August, the lowest point on record. Those low borrowing rates are boosting homebuyers' appetites.
After screaming higher in May and June (after a 3-month collapse), Housing Starts' rebound was expected to slow drastically in July. However, housing starts exploded higher in July, up 22.6% vs +5% expected. This is the biggest MoM rise in housing starts since Oct 2016.

However, the sentiment among home buyers appears decoupled from the sentiment of home builders, as shown on the chart below.

Chart: Homebuilder Sentiment much more positive than Homebuyer Sentiment (source: Bloomberg)

housing sentiment


This can be explained by the fact that the loan standards for most products - such as C&I loans, residential mortgages and credit cards - were hiked so much they nearly matched the standards during the financial crisis when it was virtually impossible to get any new loans.


Home improvement is the bright spot

The best performing segment within the US Home building state has been the home improvement industry – as illustrated today by the strong earnings results published by Home Depot.

Indeed, Home Depot Inc (HD) reported it biggest rise in quarterly same-store sales in at least two decades on Tuesday as demand for paint, tools and other home improvement products surged from consumers stuck indoors due to the COVID-19 pandemic.
Same-store sales jumped 23.4% in the second quarter, surging past analysts' average estimate of a 10.5% rise. Net income rose 24.5% to $4.33 billion, or $4.02 per share, in the quarter ended Aug. 2, despite the company spending $480 million in additional benefits to compensate employees required to work in stores and warehouses amid the health crisis. Analysts had expected a profit of $3.71 per share, according to IBES data from Refinitiv.

Home Depot and smaller rival Lowe's Cos Inc have been among a handful of corporate winners since the start of the pandemic, as more people took up do-it-yourself projects such as painting and gardening while at home.

The U.S. housing market's stronger performance compared with the broader economy has also given people more impetus to remodel their homes, driving demand for home improvement tools and items.


How to play it

Home improvement stocks (largest market cap)
- Home Depot (HD)
- Lowe’s (LOW)
- Whirlpool Corp (WHR)
- Masco (MAS)
- Fortune Brands Home & Security (FBHS)
- Lennox International (LII)
- Carrier Global (CARR)

Homebuilders stocks largest market cap)
- DR Horton (DHI)
- Lennar Corp (LEN)
- NVR Inc (NVR)
- PulteGroup (PHM)

ETFs (largest Assets under management)
- iShares US Home Construction ETF (ITB)
- SPDR S&P Homebuilders ETF (XHB)


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