David Prince
US Equity/Options Fund Manager, Mentor at T3 Live
Homebuilders are cyclical stocks tied to interest rates, which makes them unappealing. 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
D.R. Horton's land-option model makes it the dark horse among the preferred homebuilders. It is now 90% land option, like NVR; its chief even keeps an NVR stock chart on his office wall. NVR, D.R. Horton and Green Brick Partners remain much preferable to Lennar. x.comÂ
Home Depot and homebuilders look awful and have broken below support. Both offer a lot of value and are way oversold, but they need interest rates, inflation and oil to come down before they can recover. x.comÂ
Zillow is a Stage 4 stock in a clear downtrend, a reminder that a company can post decent numbers and still be a terrible stock. Rallies keep failing, and a recent bear flag preceded a 25% drop to new lows over six weeks. Housing stocks lack a favorable backdrop with mortgage rates above 6%. Down 67% from its highs, Zillow needs a 203% gain to break even, and laggards like this drag on performance. 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
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 Depot is a best-in-class operator trading near 52-week lows, and it has historically come out of housing cycles stronger. Weak housing turnover has clearly been a headwind, but its balance sheet, scale, dividend and long-term pricing power still look very attractive. x.comÂ
Markets can front-run a rate turnaround, favoring an upward swing in Opendoor. Its transformation and a turn in rates are both bullish catalysts, while long-duration Treasuries look to be bottoming. Opendoor's stock is holding its support area. x.comÂ
High Treasury yields keep US real-estate stocks from being a buy yet, despite a record low against the S&P 500. Each hike pushes the sector lower; the 10-year yield above 5% argues for waiting rather than assuming rotation is inevitable. A turn likely needs falling rates, perhaps a first cut or the 10-year back below 4%. x.com x.com x.com x.com x.com x.com x.com x.com x.com x.comÂ