Brad Thomas
Founder & Lead Analyst of Wide Moat Research
US homebuilders look attractive because America remains structurally undersupplied with housing, and Berkshire Hathaway is buying quality builders while Wall Street focuses on near-term affordability pressure. Berkshire added about 2.74 million Lennar shares as elevated mortgage rates weigh on builder valuations, after acquiring Taylor Morrison and investing in D.R. Horton and NVR. Follow the smart money, but always mind the price. x.com x.comÂ
Home construction stocks are rallying as money rotates into under-owned, lower-volatility areas, helped by earnings. Regional banks, transports and medical devices are ripping too, while overcrowded, highly margined growth-at-any-cost areas such as semiconductors are being unwound. x.comÂ
Ugly housing conditions provide the contrarian sentiment for a major homebuilder bull run over the next 12 months. Bears investing through the rearview mirror are going to be proven wrong. x.comÂ
Homebuilder stocks are priced for a soft landing that the inventory data doesn't support. New home supply hit 10.3 months, the highest since February 2009, against a long-term median of about 6, after jumping a full month in May. In 6 of the 7 times it reached this level since the 1970s, the US was already in recession. Mortgage rates and record ownership costs keep buyers out, and when builders cut prices hard to clear supply, margins will take the hit and the sector will reprice. x.com x.comÂ
Homebuilders such as Builders FirstSource are priced like trash, so any improvement in rate expectations should send them higher. Pricing in two or three rate hikes by year-end looks wrong with oil falling to $75, AI acting as a productivity tailwind and the midterms approaching. x.comÂ
Homebuilders should benefit as the dollar falls, yields hit a wall and bonds catch a bid. Industries that gain from fading yields and a weaker dollar should stay the hottest hand for the coming months, and multi-month accumulation without selloffs reveals what the market is pricing in, beyond the headlines. Homebuilders, tied to mortgage companies, generally do well in this period; they may not offer the biggest gains but are less volatile than other lower-dollar plays. x.com x.com x.comÂ
US homebuilders remain a place to avoid as Fed Chair Warsh's rate hike lands on an already weak housing market. Lennar reported orders down 9%, incentives running at 12% of the sale price and mortgage rates near 6.8%. x.comÂ
Lennar's shift toward an NVR-style asset-light model could let free cash flow and buybacks compound value even without a rerating. Having spun out Millrose and moved much of its land off the balance sheet, Lennar needs far less capital to grow, so when housing normalizes similar economics could return on a much smaller base. The market still prices it like the old land-heavy builder. NVR created value by shrinking its share count, not via a premium multiple. Ted Weschler is buying heavily. x.comÂ
The secular rise in Treasury yields will likely last longer and go further than most expect, making bets on a yield low premature. Investors tried to time the low in yields from the early 2000s and were 20 years early. The most rate-sensitive sectors, homebuilders, mortgage names and private equity, where smart money would show up first if a turn were near, show no hint of accumulation. x.com x.comÂ
Homebuilders are cyclical stocks tied to interest rates, which makes them unappealing. x.comÂ
As the AI infrastructure crash takes form, its recessionary effect suppresses bond issuance and powerfully caps yields, giving battered housing, mortgage and related stocks a lift. Starwood Property Trust, Rocket Companies and Builders FirstSource should get a powerful boost as yields fall, with huge short covering and fundamental improvement; many in the group trade well below book value. x.com x.com x.comÂ
