Homebuilder stocks were not spared by the downturn in equities we saw in March-April amid the global outbreak of COVID-19, but their comeback could very well be aided by some observable culture shifts that the virus has created, as well as record low mortgage rates that could very well persist through 2021 on the back of accommodative monetary policy and suppressed treasury yields. Sentiment among builders is surging and we believe the V-bottom may already be in place for homebuilders.

Jitters around COVID-19 are back on the rise, coinciding with renewed growth in the number of new cases in the US. While most expected some rise in case numbers as states across the country began to ease restrictions, experts warn that the uptick in cases has surpassed what many states are comfortable with. Though the rates of death had been on the downswing, a rising rate of positive tests and hospitalizations has led to a rebound in fatalities as well. While a slower than expected re-opening of the American economy could complicate things, MRP still expects a V-shaped recovery. Additionally, some sectors could see a swifter and stronger recovery than others.Housing may be one of those sectors, perhaps benefitting from a number of macro trends that have grown out of the Coronavirus’ broader effect on the economy. Going forward, homebuilders, as well as construction and appliance suppliers like Home Depot, Lowes, and others may have their work cut out for them as housing activity has remained resilient throughout the pandemic. Redfin data now shows seasonally adjusted demand for homebuying during the first week of June 25% higher than it was before the COVID outbreak. In addition, buyers have been aggressive with nearly 50% of offers facing competition in last month, up from about 44% in April.

V-Bottom Forming in Latest Data 

As we wrote last month, April housing starts actually dipped to their lowest level, but it was also the severest month yet for lockdown and quarantine measures across the country, likely placing holds on construction and other activity related to homebuilders. Despite that very rough data from the NAHB, homebuilder sentiment for May actually rose 7 points from 30 to 37 – a modest improvement, but one that could mark the bottom for Corona-induced damage to the housing market and led a much more positive round homebuilder data.

This month’s data proved to be an extremely powerful month for the recovery in homebuilding…

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