Investing in the US Housing Market: Embrace or Dismiss?
Even though there is an undersupply in the housing and multi-family markets, it is a temporary condition and there is still an abundance of land and redevelopment parcels for future developments.
National Real Estate Companies identify growing metropolitan & rural areas with large tracts of land near them. They are getting prepped for future building and securing land acquisition and construction permits. Also, with an arrival of infrastructure improvements in the upcoming bill to be passed by congress, upgrades to things like drainage, roads, fire/water distribution systems and sewage are in the works, and it encourages the future growth of new home and multi-family construction.
Developers love investing in land with the promise of upcoming projects. Since there are few bidders, there’s superior pricing to be had. Real Estate companies buys in all cash for unleveraged returns and looks two to three years out at their land portfolio, while preparing for construction and increased inventory.
Traditionally Wall Street has penalized homebuilders for the carrying cost of land and investors have worried about not getting current income, and, depending on where you are on the cycle, about cyclical downturns. But the housing market’s present needs have led to creative new strategies, including working with firms to get prepared land that is ready to meet housing demand quickly.
The recent desirability in investment in home-builder stocks, and the consistent increase in their stock evaluation, has verified and given confidence in the passive investor to seek Home Builder portfolios. All the large national home builders continue to be very strong in terms of delivering housing even with the undersupply environment.
One reason is that despite increased materials costs, homebuilders are benefiting from the higher prices buyers are willing to pay in the crunch. They continue to raise prices more broadly which are well beyond lumber & material inflation.
With the Covid-19 pandemic creating more work-from-home and hybrid-work models, there’s early proof people are reconsidering urban lifestyles and decamping for the suburbs or lower cost, less centrally located cities. This allows national and regional home builders to look for land in areas where they can build housing to follow these trends, avoiding premium costs while taking advantage of strong customer demand for housing.
