Home Builder Stocks Shine as Prospective Buyers Turn to New Construction

With home prices skyrocketing over the past year many new homeowners are turning to building their own homes.

According to CNN Business, fed up with fierce competition for the smattering of houses available in their targeted neighborhoods, or looking to avoid bidding wars altogether, some Americans have opted for new construction instead.

That’s been a boon to home builder stocks. Compared to the benchmark S&P 500 index’s gain of about 17% this year, Pultegroup shares have jumped roughly 80%, Toll Brothers added 64%, DR Horton rose about 34% and Lennar climbed 32%.

Bank of America analysts said in a recent report that they expect home builders to ramp up their pace of housing starts during the second half of this year.

A securities filing earlier this month revealed that Warren Buffett-led Berkshire Hathaway has made a big bet on Lennar, DR Horton and NVR. That helped lift some home builder stocks, though many still slipped in August along with the broader market.

Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services, says she expects the run in home builder stocks to continue as mortgage rates stay high and supply stays low. “Especially if you’re a first time buyer, this is an impossible market,” she said.

Furniture stocks have also rallied this year, indicating that Americans who can’t or don’t want to move are sprucing up their homes instead, says Rathbun. Wayfair shares have soared roughly 110%, RH rose 37%, La-Z-Boy added 35% and Ethan Allen gained 21%.

The record high for gas prices during the week leading up to Labor Day was set in 2012 at $3.84 a gallon, according to a CNN review of federal data that goes back to 1990.

Current prices are just shy of that. The national average for regular gas is $3.82 a gallon as of Friday, according to AAA.

Normally, prices at the pump cool off as the summer winds down. Not this year.

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