A detailed study of the cycles in housing industry by Legg Mason. “… what is worth consideration is that buying homebuilding stocks the last time (1990) that sentiment was so depressed proved to be a productive strategy. Five years later from that October 1990 trough, the S&P 500 Homebuilders Index was up almost 175% in price terms”.
“From the peak on July 28, 2005, the homebuilders index fell 67.7% to its most recent bottom on September 25, 2007, under performing the S&P 500 dramatically. On an average annual return basis the homebuilders index lost 40.21% versus a gain of 11.71% in the S&P500.30 The gain for the broader S&P500 differentiates this period from the previous one, which witnessed a decline in the overall index. This could be a sign that the market is not pricing recession presently, as it was seventeen years ago.”
“Among the several reasons that Legg Mason Capital Management (LMCM) has acquired large stakes in several homebuilders is that demographics continue to support the sector, in their opinion. Baby-boomers have grayed since 1990, but remain in their peak earnings years with many at the age when second-home purchases are more likely to occur. Meanwhile, their children ~ the echo boomers ~ are arriving at the age when people typically begin to buy their first home. Additionally, according to Census data, immigrants eventually achieve homeownership rates higher than do native-born Americans, which is a supporting statistic for housing given the high level of immigration in recent years. Furthermore, worker mobility could be a positive trend for homebuilding and housing in some regions. Moreover, minority ownership rates have also been trending up.”
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“From the peak on July 28, 2005, the homebuilders index fell 67.7% to its most recent bottom on September 25, 2007, under performing the S&P 500 dramatically. On an average annual return basis the homebuilders index lost 40.21% versus a gain of 11.71% in the S&P500.30 The gain for the broader S&P500 differentiates this period from the previous one, which witnessed a decline in the overall index. This could be a sign that the market is not pricing recession presently, as it was seventeen years ago.”
“Among the several reasons that Legg Mason Capital Management (LMCM) has acquired large stakes in several homebuilders is that demographics continue to support the sector, in their opinion. Baby-boomers have grayed since 1990, but remain in their peak earnings years with many at the age when second-home purchases are more likely to occur. Meanwhile, their children ~ the echo boomers ~ are arriving at the age when people typically begin to buy their first home. Additionally, according to Census data, immigrants eventually achieve homeownership rates higher than do native-born Americans, which is a supporting statistic for housing given the high level of immigration in recent years. Furthermore, worker mobility could be a positive trend for homebuilding and housing in some regions. Moreover, minority ownership rates have also been trending up.”
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