PulteGroup Is in a Prime Position as New Housing Demand Grows

Today we revisit a theme for the first time in 2021 that I covered frequently in 2020. That is the mass migration out of dense, high tax and poorly run locales across the nation. Over the past week the mayors of New York City and Chicago announced new efforts to get their economies opened again after having severe restrictions on business activities and social gatherings since the pandemic hit including many months of full lock down mode. These efforts come way too late for the thousands of small businesses that have gone bust already thanks to these restrictions. I doubt it will get many of the hundreds of thousands of households that have left the Big Apple since March of last year reversing their personal exodus either. It is also not only small businesses and individuals leaving these environments. In recent months, Oracle , Tesla Motors , Charles Schwab and Hewlett Packard have announced they are moving operations and/or headquarters from California to Texas. Last year, I made a tidy little profit on my homebuilder stocks as this migration was one of the primary factors behind a robust housing market. I have took a lot of profits in these names over the past quarter. Rising costs for lumber, the lack of skilled labor availability and one would think rising mortgage rates eventually will be headwinds to the industry even as I believe the overall housing market could remain stronger for longer than most pundits are projecting. I did open a new position via covered calls in PulteGroup last week, however. This is one of few homebuilder equities that did not have a big move up in 2020 and the stock is cheap at just over eight times earnings. With available homes for sale hitting an all-time low in December, the demand for new housing stock could last significantly longer than a typical housing cycle. I like the housing related stocks like home furnishing and renovation plays more than most homebuilders here it should be noted. This exodus is having some interesting impacts across the nation. I was chatting with a friend earlier this week who lives in Sturgis, South Dakota, which is famous for its annual motorcycle rally. She was saying there was next to nothing for sale in her area despite a 30% increase in price per square foot prices over the past year. My take is if people are bidding up prices to live in the frozen tundra, this is a story that is not getting the attention it deserves. Personally, I am also actioning this migration outside of stocks. In October I bought a loft in the fast-growing town of Delray Beach, Florida. After six weeks and $50,000 of renovations, I listed it for seasonal rental on a Saturday at what I thought was an aggressive 'ask'. By Monday, I had four firm offers, three from New Yorkers. It is now rented out at almost double my 'nut' for the next six months. I will be looking to find a similar situation in Charleston, South Carolina over the next year, thus doing my part to boost housing demand. I want to lock in another mortgage at these rates. Given the government has already allocated some $3 trillion to Covid-19 relief efforts and the new administration is now asking for $1.9 trillion more, one would think at some point we will see some inflation, and all be wishing we had refinanced or took out a mortgage at these historically low rates. And that is some personal color to a story I think will continue to run for many years and is not getting the financial press it deserves.

PulteGroup Is in a Prime Position as New Housing Demand Grows

This is one of few homebuilder equities that did not have a big move up in 2020 and the stock is cheap.

Columnist Conversation

Michaels: Close to a Deal?

Wednesday Morning Fibocall for 3/3/2021

Michael's (MIK) Up on Takeover Rumors

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.