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Homebuilders Set to Benefit as Demand Grows

We don't see any economic moats for homebuilders under our coverage, but D.R. Horton has great positioning, and Toll Brothers is undervalued.

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Brian Bernard: Although new-home production has improved each year since the 2009 trough, we have yet to return to a normalized level of production, which has created significant pent-up demand. We see a maturing millennial population, a gradual improvement in financial health, and execution of postponed events, such as marriage and childbirth as powerful catalysts for new-home construction.

Homebuilding is a very fragmented and competitive industry with limited barriers preventing competitors from replicating successful strategies and entering new markets. As such, we do not believe any of the homebuilders under our coverage possess economic moats. Still, all of these builders will benefit from growing demand.

Brian Bernard does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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