Rising Costs Shouldn't Deter Homebuilders
We expect housing starts to keep marching higher and think Lennar and Toll Brothers look undervalued.
Charles Gross: On a seasonally adjusted basis, new home construction has been running at a 1.29 million unit pace for the year, in line with our 1.3 million unit forecast, and still showing positive momentum versus the prior year.
This quarter, we reviewed trends in homebuilding input costs and show that homebuilders still have plenty of reason to keep building despite rising costs. Lumber prices are up 30% versus last year, while construction labor is up 4%, both figures well ahead of broader inflation metrics. However, those costs are being more than covered by a 7% increase in new home sales prices per square foot. As homebuilders steadily move down market, building smaller homes, we expect starts to march higher to a peak of 1.9 million units by 2021, before fading to a 1.5 million unit pace in the long run.
Charles Gross does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.