You’re Getting Less Home for Your Money - InvestingChannel

You’re Getting Less Home for Your Money

Proprietary Data Insights

Top Homebuilder Stock Searches This Month

#1D.R. Horton18,033
#5Cavco Industries4,214

Looking at homebuilder stocks in Trackstar, our proprietary sentiment indicator, we noted a 33% surge in investor interest in the space’s #1 stock, D.R. Horton (DHI). A meaningful uptick in the non-flashy residential construction category and a bigger surge than DHI’s largest peers. 

The Juice squeezed the best nuggets from DHI’s recent fiscal Q4 2022 earnings call to see what the buzz is about. 

Beyond the headline numbers (unsurprising misses on sales and profits), DHI’s commentary underscores the reality of our crazy housing market. 

From the call: 

  • A lot of our incentives have been on the financing side with interest rate locks and buy downs to try to address the payment shock there from the interest rates.”
  • During the quarter, we continued to sell homes later in the construction cycle to better ensure the certainty of the home close date and mortgage rate for our homebuyers with almost no sales occurring prior to start of home construction.”

D.R. Horton not only feels the need to entice buyers with interest-rate deals, it also gives them less time to think about, and ultimately back out of, their purchases by shortening the sales cycle. 

In September, we told you about Lennar (LEN) using a similar tactic not opening a community for sale until models are fully constructed amid a large number of cancellations. 

Also interesting from DHI, just as some consumers are trading down at discount retailers and grocery stores due to inflation, they’re doing likewise with housing thanks to high prices and mortgage interest rates: 

So when the market is running red hot like it was first half-plus of last year, you have a tendency to release the bigger houses because your… dollar profit per house is higher. Now when a price point becomes much more important to the buyers. We made the release, they go from the 2,300-square-foot two-story down to the 1,600-square-foot ranch…”

Downsizing. Not by choice, but out of necessity. 

Scroll with us for data that backs up this trend. You won’t believe how much less house you get for your dollar in some places this year versus last. 

But real quick, our thoughts on D.R. Horton stock after Trackstar put it in front of us and we did our due diligence. 

If you’re a long-term investor who thinks the housing market will normalize to its typical ebb and flow, buy now and buy on dips. 

DHI trades with a forward P/E ratio of just over 9. If most of the worst is behind homebuilders and we think it is that’s too cheap to ignore, especially if you’re investing with a multi-year time horizon.


You’re Getting Less Home for Your Money

Key Takeaways:

  • Homebuyers across the country are getting much less living space for their dollars. 
  • While purchasing power plummeted most in uber-expensive real estate markets, the same isn’t always the case for living space. 
  • Buyers in smaller, less expensive cities lost the most living space for their money between 2021 and 2022. 


Going from a 2,300-square-foot two-story home to a 1,600-square-foot ranch. 

D.R. Horton illustrated the reality: Amid sky-high home prices and mortgage interest rates, not only your purchasing power has decreased, so has the amount of living space you get for your money. 

Below, we look at how recent analysis from Point2 quantified both metrics across America. 

Purchasing Power

Big shock. Homebuyers in the SF Bay Area lost the most purchasing power between 2021 and 2022. 

  • In Fremont, CA, a median-income household could afford (meaning they spend no more than 30% of their income) a home as expensive as $893,390 in 2021. That figure dropped to $650,269 in 2022. A decrease of $243,121. 
  • In San Jose, buying power decreased $200,472 from $730,869 in 2021 to $530,397 in 2022. 
  • In the city of San Francisco, purchasing power plummeted $198,796 from $715,585 in 2021 to $516,790 in 2020. 

Good luck finding a home for half a million bucks in San Jose or San Francisco, where median prices easily top $1 million. 

But it’s not just the Bay Area where purchasing power took a significant year-over-year hit. 

  • Arlington, VA, came in fourth with a $179,806 loss in purchasing power. A median-income homebuyer there can afford up to $507,137 in 2022, down from $686,943 in 2021
  • In relatively tiny Gilbert, AZ, purchasing power dropped $174,097 from $621,675 in 2021, making anything up to $447,579 affordable in 2022. 

You gotta go to the old Rust Belt and environs to tame loss of purchasing power into the five figures: 


Source: Point2

Living Space

Don’t call it a bright side, but in some of the most expensive housing markets, if you can afford a home, you’re not sacrificing that much square footage. 

  • In San Francisco, buyers get only 138 fewer square feet for their money in 2022 versus 2021. 
  • In New York City, the loss is 92 square feet. 

What’s the catch? In these higher-density urban environments where space is scarce, properties tend to be smaller. So you’d expect less variation in square footage. 

To lose the most living space for your money, you gotta go to…

  • Fort Wayne, IN: In 2021, the average homebuyer’s money got them 3,035 square feet of space there. That number dropped to 1,896 in 2022, a startling decline of 1,140 square feet. 
  • After Fort Wayne comes Wichita, KS (loss of 990 square feet), followed by Chesapeake, VA (917), Indianapolis, IN (908), and Kansas City, MO (888). 

The typical bedroom in the U.S. is 132 square feet. This means Fort Wayne homebuyers lost, on average, the equivalent of nearly nine bedrooms of space. 

Buyers in 60 other cities lost 500 to 1,000 square feet, or the equivalent of four to eight bedrooms. 

The Bottom Line: If you earn the median income, affording a home is literally impossible in three California cities: Irvine, Anaheim, and Los Angeles. There’s no inventory for you at an affordable price. 

In 41 other cities, the inventory of homes you could afford on the median income makes up less than 10% of the total properties for sale. 

So if anybody’s complaining about having to go with the 1,600-square-foot ranch over the 2,300-square-foot two-story, they might want to stop and count their blessings right after they count their money. 

At least they can afford to buy a home, even if it’s smaller than the roof over their head they would have been thankful for if they entered the market during the 2021 holiday season.

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