Shareholder returns for major homebuilders D.R. Horton and Lennar outperformed the S&P 500 index from August 2014 through August 2024. Analysts lowered their investment outlooks for both companies this summer, but some investors remain optimistic about the industry’s earnings prospects.
DR Horton (DHI) and Lennar (LEN) performance versus the S&P500.
Industry observers say large homebuilders have strengthened their market position since the 2007-2008 financial crisis.
“Many of them received significant liquidity increases from the stimulus packages of the early 2010s,” said Luis Quintero, a professor at the Johns Hopkins Carey School of Business, “and they were able to use those resources however they wanted.”
Quintero’s research suggests that a declining level of competition among homebuilders may be contributing to the U.S. housing shortage.
Supply constraints slow home construction
The U.S. will need to rapidly build millions of new homes to tame the recent rise in home prices.
“The supply shortage we estimated was [is] From 2 [million] “The housing shortage has gone from 20 million to 8 million. Some say we’re even short 20 million homes,” said Tobias Peter, co-director of the Housing Center at the American Enterprise Institute.
Some experts say the long-running shortage is due in part to a permit approval process that can slow down projects in highly regulated areas.
Margaret Whelan, founder and chief executive of Whelan Advisory, said home sales were increasing in areas with more vacant land and fewer regulations.
“In California, land decisions take decades to make, but that’s not the case in Texas,” Whelan said. “The financial benefits are great.”
Permits and starts for new housing projects are trailing record highs recorded in 2021 as sharp increases in home prices, along with rising mortgage rates, continue to keep many would-be buyers out of the market.
Zoning Proposals for the 2024 Election
Vice President Kamala Harris and former President Donald Trump have contrasting views on zoning reform that could affect the pace of housing construction.
During her campaign, Harris called on local governments to relax strict zoning laws that limit the number of permits they can issue for new homes. Her platform calls for subsidies for some builders to help build 3 million new homes by the end of her term.
“We will end America’s housing shortage,” Vice President Harris said on the final night of the Democratic National Convention.
Former President Trump has called for an end to the Biden administration’s efforts to build higher density housing in suburban areas. Trump has also criticized the administration for the current inflationary climate that is affecting major costs, including housing.
“Young people can’t get loans to buy homes,” former President Trump said at the Republican National Convention in July.
To learn more about what’s causing the slowdown for U.S. homebuilders, watch the video above.
