A few months ago we wrote a note highlighting the fact that over the last decade the US has severely under-invested in housing. We pointed out a 370,000 unit annual shortfall below the required level to meet our long term needs.
In August, new residential construction in the US actually reached a 12-year high. Interestingly, even at August’s pace of new construction, we would still be short of the long term need according to Freddie Mac. This dynamic bodes very well for the homebuilders and the many ancillary businesses that feed into housing.
The market seems to agree. D.R. Horton (DHI) is one of the nation’s leading homebuilders and their stock has returned +52% this year as of 10/8/19. We think this is a cyclical trend that is likely to last for many years.