US homebuilders are having a surprisingly good pandemic. It turns out that nothing motivates people to trade up for extra space like being stuck at home day in, day out with their families.

Americans with enough cash and a stable job are taking up ultra cheap mortgages to buy bigger properties. City dwellers are decamping for the leafy suburbs. US home prices — as measured by S&P Corelogic Case-Shiller’s national home price index — rose 4.3 per cent in June from a year ago, hitting a new high. New home sales surged 36 per cent year-on-year in July. In percentage terms the most since February 1996. Unit sales on an annualised basis are at their highest in almost 14 years.

All this is fuelling investor confidence. The S&P Homebuilders Select Industry Index is up 17 per cent this year and touched a new peak this week. The country’s four largest homebuilders by market value — DR Horton, Lennar, NVR and PulteGroup — have all seen their share prices reach new highs this month. The four trade on price to forward earnings ratios that range from 10 times (Pulte) to 17 times (NVR), a bit above historical averages.

Forward looking gauges — pending sales, housing starts and building permits — suggest that, against all odds, the US housing market is holding up.

But one headwind is rising lumber prices, more than doubling this year to a record high. This will put pressure on margins. Framing timber, along with installation, accounts for nearly a fifth of the cost of a house, according to the National Association of Home Builders. Also one cannot ignore the looming threat posed by millions of Americans without jobs. The big four homebuilders have most recently put an emphasis on low-priced, entry level homes to drive growth. This may have to change. Existing homeowners seeking new pastures appear to be a far more attractive market.

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