Halftime: Homebuilding Stocks Falling – What Now?

The home construction industry is in a deep funk. Halfway through 2020, homebuilder and building product stocks are quietly trending down. The coronavirus pandemic has created a perfect storm for the industry, as a slow economy, rising unemployment, and a pandemic-driven recession has made it difficult for many people to buy or build a home. The decline in homebuilding stocks has been reflected in recent earnings reports. The housing market is expected to decline by 17% by early 2021, and many companies are scaling back new construction and postponing projects. While the stock prices of the major building and home builder product companies have declined, some smaller more specialized companies are seeing gains. Due to the uncertainly in the market, the Federal Reserve has cut interest rates to historic levels. This has helped to make mortgages more affordable for some buyers, but at the same time it has stifled new building activity. Many people are taking out new mortgages, but few are completing the purchase of a home within the same quarter which has hurt the real estate market overall. In response to the poor performance of the housing market, a number of homebuilders and building product companies have focused on strategies to protect their market share. These strategies include cutting back expansions, focusing on acquisition activities, and layoffs. Other companies are using technologies like 3D printing to reduce construction costs and build homes faster, and still other companies are looking to plug any gaps in the supply chain in order to keep up with demand. The impact of the pandemic on the construction and home product market may not be known for several more quarters. In the meantime, these companies must focus on creating new products, expanding into other markets, and finding ways to remain competitive. The future of these companies will depend on how they are able to navigate these difficult times and remain profitable during this period of economic uncertainty.

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