Our theme of Housing equities, which includes the equities of home builders, building product manufacturers, and home improvement companies, has performed well so far in 2023, rising by a solid 50 percent year-to-date. Comparatively, the S&P 500 is up approximately 19% over the same time period.
While rising interest rates and high inflation had a negative impact on the housing market in 2022, the housing market is visibly improving this year.
The seasonally adjusted annual rate of new single-family residences sold in May, the most recent month for which data is available from the U.S. Census Bureau, was 763,000 units, up 20% from the same month last year. The median price of a residence for the month is $416,300, down from $450,700 in the same quarter of the previous year.
Nevertheless, housing starts for single-family homes decreased slightly in June, while permits for future construction increased 2.2% to a rate of 922,000 units, the highest level since June 2022. Inflation and supply chain issues are also alleviating for the housing industry, which could benefit input costs and prices for builders. Inflation at the retail level in the United States increased by only 3% in June, the lowest increase in over two years.
In spite of the fact that mortgage interest rates have increased since the COVID-19 pandemic, the Fed has refrained from raising rates, and the average 30-year fixed-rate mortgage in the U.S. is currently around 6.8%, down from 7.1% late last year. This may make financing new residences more affordable.
There is also a foundational housing shortage, with estimates ranging from 1.5 million to 5 million homes short in the United States. This may suggest that housing market participants continue to have a high level of demand visibility, with volumes and revenues likely to remain stable.
Within the context of our theme, Pulte Group stock has been one of the top performers, gaining approximately 69% year-to-date. Home Depot, on the other hand, has been the worst performer, with its stock declining 1% year-to-date.
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