Proprietary Data Insights
Top Homebuilder Stock Searches This Month
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:
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
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.
Big shock. Homebuyers in the SF Bay Area lost the most purchasing power between 2021 and 2022.
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.
You gotta go to the old Rust Belt and environs to tame loss of purchasing power into the five figures:
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.
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…
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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