The Big Housing Migration And How It Affects The Homebuilding Industry

Do note, that XHB also holds home improvement retail stocks like Home Depot (HD) and building products stocks like Masco (MAS), so it’s not a pure homebuilders index.

Indicators To Track Homebuilders and Housing

Building Permits and Housing Starts

Most local governments require builders to attain building permits to start developing.

Tracking these can serve as a leading indicator of the housing market. After receiving government approval to start a project, developers get to work.

At this point, a housing start is recorded, which, according to the National Association of Home Builders is when “excavation begins for the footings or foundation of a building primarily as a housekeeping residential structure.

 Trends show up in building permits before they show up in housing starts.

If you notice a significant divergence between the two for at least three consecutive months, you might be noticing a shift in the housing market.

US housing starts just hit their highest level since September 2006, which was during the last housing boom.

That’s the level of pent-up demand being released by lower rates, pandemic migration, aging millennials, etc.

Of course, the comparison to the housing boom feels ominous, so we have to be careful as the housing market is definitely frothy right now.

But a look at the long-term chart of housing starts tells us that we’re still not even close to the peak of the housing boom, however.

Housing Market Data

You can obtain pretty granular data on how both national and local housing markets are shifting from Zillow for free.

Some data points of note are: 

  • For sale inventory
  • Newly pending listings
  • Share of listing with a price cut
  • Average sales price

You can view some of the data directly from their website using Tableau data visualization tools, while others require you to download CSV data and chart it yourself.

Let’s look at an example of a hot area: Austin, Texas. Elon Musk and Joe Rogan, some of the biggest celebrities right now, just moved there last year.


Tailwinds for Homebuilders

Low Mortgage Rates

Mortgage interest rates are the lowest they’ve ever been in the United States. According to the St. Louis Federal Reserve, the average 30-year fixed-rate mortgage is at 2.7%. Mortgage rates have a direct effect on home affordability.

Here’s an excerpt from a DoughRoller article demonstrating how significant the impact of mortgage rates is on affordability: 

Scenario #1: 3.5 percent interest

Paying 3.5 percent interest, you could afford a mortgage of about $187,434. With your down payment, that brings your upper limit home price to $197,434.

Scenario #2: 5.5 percent interest

Paying 5.5 percent interest, which seems like such a small increase, you could afford a mortgage of $148,235, for a home worth $158,235.

Scenario #3: 7.5 percent interest

Add two more percentage points in interest, and your mortgage limit drops to $120,373, or a home worth around $130,373.

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