The iShares US Home Construction ETF (ITB) slid nearly 10% in January, but Smead Capital Management’s CIO says real estate continues to be a hedge against inflation.
Smead’s comments on CNBC’s ‘The Exchange’
Bill Smead has been bullish on homebuilders since 2013. On CNBC’s “The Exchange”, he reflected on how remarkably different the housing market is today from what it was more than a decade ago when it led to the financial crisis.
Demographics are spectacular. Millennials did not really get started buying a house until the pandemic hit. Therefore, how do you burn ten years of demand off in a year and a half? Well, the answer is that you haven’t.
His top picks for equity investors in this space are D.R. Horton, NVR, and Lennar Corp. Smead’s outlook is in sharp contrast with KeyBanc’s Kenneth Zener, who raised the alarm on real estate stocks earlier in January.
Why else does Smead like homebuilder stocks
Smead’s top three homebuilder stocks dominate 20% of the market combined, suggesting the industry is no longer fragmented, which he sees as a positive for real estate. Smead added:
These companies have spectacular balance sheets. At the peak of the cycle back in 2006, they were levered up to their eyeballs. They’d borrowed money to develop land. When things turned down, they had to write down that land. But now, most of what they build on, somebody else develops.
The U.S. consumer price index jumped 7.0% last year – the hottest reading in about forty years, that spurred talks of as many as seven rate hikes this year. The CPI data for January 2022 is scheduled for next week.
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