Recent rosy figures from the US housing sector bode well for Masco Corporation (NYSE:MAS), which is engaged in the manufacturing, distribution, and installation of home improvement and building products. Its product line, which among other items includes windows, architectural coatings, faucets, and cabinets, is distributed through multiple wholesale and retail channels. Masco also sells directly to home developers.
One of Masco’s major retail conduits is The Home Depot, Inc. (NYSE:HD) , which has 2,252 locations across the U.S., including Puerto Rico and the American territories in Virgin Islands and Guam. Home Depot’s clientèle is primarily comprised of do-it-yourself and do-it-for me customers, as well as professional builders. This spring, the home improvement retail chain is increasing its seasonal hiring to 80,000 workers; it had some 70,000 seasonal hires last year. Home Depot is also planning 3,500 additional stores in New Jersey and New York where repairs on the damage of Hurricane Sandy are continuing. The company’s revenues in the previous two quarters are on an uptrend, with a 1.7% gain in the 2012 second quarter and a 4.6% increase in the third quarter to $18.13 billion.
Recently released statistics paint a bullish picture for both Masco and Home Depot. Data from the US Commerce Dept. shows that housing starts across the country surged by 12.1% in December 2012 to an annual rate of 945,000 units, the fastest pace since June 2008.
Opportunities from New Construction and Renovation
This uptrend in new home construction can be expected to continue this year as market inventories of previously owned homes dropped 8.5% to an 11-year low of 1.82 million units in December, figures from the National Association of Realtors show. Meanwhile, sales of previously owned residences are accelerating, which was registered at a 12.8% clip to 4.38 million units for the month. At this current sales pace, it is estimated that previously available occupied homes are just at a 4.4 months supply, down from the 4.4-month level in November.
This declining pattern was observed for most of 2012 and is likely to continue into 2013. Slow but steady gains in employment, coupled with higher consumer confidence and record-low mortgages, have fueled sustained demand for existing homes and new builds.
A silver lining is likewise provided to Masco and Home Depot in the scenario of institutional investors, such as hedge funds, edging out individual home buyers in home re-sales, particularly on the relatively lower-priced distressed properties foreclosures. These investors have the war chest to pay in cash and can thereby outbid individual home buyers in the home re-sale market. Home improvement manufacturers and suppliers, like Masco and Home Depot, in turn benefit as these investors spend more to renovate their acquisitions as rental properties.