PulteGroup, Inc. (PHM), Lennar Corporation (LEN): What Will Put the Brakes on Housing?

Page 1 of 2

A friend of mine recently tried to purchase a home in Northern California. He gave up after a year of trying. Few homes were available for sale, and those on the market were quickly snatched up by investors paying all cash.

This is becoming more common. In June, nearly 70% of for-sale homes received multiple offers, up from 50% two years ago, according to Redfin.

Nationwide home prices are up 12% from a year ago. Some regions have enjoyed 20% growth. This is way above what anyone should expect real estate to gain in the long run. And it’s a product of one simple fact: The supply of homes for sale was recently at the lowest level since the housing bubble last decade.

In a healthy real estate market, enough homes will be on the market to supply about six months of sales activity. Earlier this year, supply dropped all the way to 3.9 months, or the lowest since 2004.

But things are changing. Supply is ramping up again, now running at 5.2 months’ of sales:

Keep an eye on this. Rising supply almost certainly means growth in home prices will cool off. This should come as no surprise — no one should have expected prices to keep growing at more than 10% per year.

The question is how high supply might go. Three forces will guide its direction.

1. Owners gaining positive equity. 2.5 million homeowners regained positive equity — meaning their home is worth more than they owe on the mortgage — in the second quarter, according to CoreLogic. Some of these homeowners have been itching to sell for years and just now have the opportunity.

But judging how many will do so is difficult. Even homeowners who once wanted to sell and move might opt to stay put even with positive equity. It’s a wild card.

2. Homebuilders adding to supply. Homebuilders recently discovered something that’s been elusive for years: the ability to raise prices. The balance they now need to strike is how much to ramp up supply versus holding back supply to maximize prices. PulteGroup, Inc. (NYSE:PHM) CEO Richard Dugas said earlier this year: “In a number of communities across the country, demand has been so strong that we have taken action to slow the overall pace of sales.”

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!