The Housing Cycle Recovery Is Imminent but Already Fully Factored Into Housing-Exposed Stock Prices

The impact of the coronavirus on Australian residential construction activity, house prices, and rental markets in 2020 has proven far less pronounced than we'd originally feared. Dwelling construction activity, house prices, and rents contracted during the height of the pandemic's shock to the Australian economy in mid-2020. However, a rapid reversal is now apparent in the final quarter of 2020, largely the result of highly effective fiscal stimulus directed toward the housing sector. Consequently, much-needed cyclical earnings relief is afoot for the building and construction materials sector. However, equity markets have already spotted the impending inflection point in construction activity and investor optimism abounds once more. With housing-exposed stock prices already incorporating the sector's imminent earnings recovery, we recommend investors look elsewhere in their search for value as the sector is likely to underperform in 2021. For further detail regarding our 2021 outlook on Australian housing, please see our report “Imminent Recovery Is Overbuilt Into Housing Exposed Stock Prices” dated Dec. 10, 2020.