Low household formation numbers over the past five years will drive homebuilder demand going forward
One of the biggest reasons why this recovery has been so intractable has been the complete collapse of housing construction. Historically, housing has led economies out of recessions, but that has not happened this time around. The housing bubble is a major factor in this, but there is more going on, and this series will focus on it.
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The missing piece of the puzzle for the homebuilders like Lennar (LEN), KB Home (KBH), Standard Pacific (SPF), PulteGroup (PHM), and Toll Brothers (TOL) has been low demand for housing. In particular, the first-time homebuyer has been more or less absent from the housing market.
Since the financial crisis began, demand for new construction has fallen, as household formation numbers have dropped. The low household formation numbers have been driven by a poor economy—not by demographics. This represents pent-up demand that must be satisfied in the future.
This series will discuss household formation numbers historically and over the past few years. We’ll compare those numbers with housing starts and show that there’s tremendous pent-up demand for housing, which will drive homebuilder earnings for years to come. We’ll also discuss which homebuilders are best positioned to take advantage of the turn in household formation, which will definitely happen.