The biggest homebuilder in the country just hit a nine-year high.

D.R. Horton (DHI), which sells more homes than any other homebuilder in the US, just announced outstanding second-quarter results. The company sold 2,180 (or 22%) more homes than it did during the same period last year. And it sold them for 7% more, on average, than a year ago. Revenues rose 37% in total from last year.

D.R. Horton’s share price jumped 3.2% on the news. It’s now up 17% this year to its highest price since 2006, before the housing crisis crushed homebuilders.

D.R. Horton’s CEO said the housing market is steadily improving:

Nothing’s exploding. But everything seems to be getting a little better on a month-to-month, quarter-to-quarter basis.

Other large homebuilders are doing well, too. Lennar Corporation (LEN) has gained 18% this year. NVR, Inc. (NVR) has gained 17%. These are the third- and fourth-largest US homebuilders by revenue.

•  Signs of a housing recovery are everywhere…

America’s largest drywall distributor, USG Corporation (USG), just booked its biggest profit in almost a decade. Drywall is a major component in the ceilings and walls of houses.

USG’s profits jumped 37% last quarter. The company’s CEO, James Metcalf, said it was the “highest level of income since the fourth quarter of 2006.”

USG’s stock rallied 6.4% on the news. It was the stock’s biggest daily gain since February 2014. USG’s stock is now up 10% this year, and is at a yearly high.

Berkshire Hathaway, the holding company of legendary investor Warren Buffett, owns 30% of USG.

American Woodmark (AMWD) is the largest wood cabinet maker in the country. Its stock is doing extremely well, too. It’s surged 62% this year and is at an all-time high. The company reports quarterly results on August 17.

•  However, American homeownership has crashed…

A lower percentage of Americans own homes today than at any point since 1967.

The US Census Bureau reports that the homeownership rate fell to 63.4% in the second quarter. This rate measures the percentage of occupied homes that are owned by the person who lives in them. It peaked at 69.2% in 2004. Then it fell off a cliff in 2007 after the housing crash…

•  You might be wondering how this is possible…

Homeownership is at a 48-year low. But homebuilders, drywall makers, and cabinet makers are all at multiyear highs.

How can this be? Who owns all the new homes that these companies are helping build?

The answer: investors.

Individuals and large investment companies have been buying up homes. In fact, US private equity firm The Blackstone Group (BX) is now the single largest homeowner in America. Blackstone has purchased nearly 50,000 homes since 2012.

Bloomberg reports that investors are driving the housing recovery:

Investors who purchased at least 10 homes a year have spent about $68 billion on 528,000 single-family houses since 2011, according to Morgan Stanley analyst Haendel St. Juste, making a corporate business out of a space dominated by mom-and-pops.

•  Meanwhile, Americans are renting…

Vacancy rates for rental homes in the US fell to a 29-year low last quarter. They haven’t been this low since 1986.

The Census Bureau reports that vacancy rates for rental properties dropped to 6.8% last month. The national vacancy rate was 7.5% in June 2014.The Census Bureau also reported that the number of renter households grew by 2 million last quarter. The number of owner-occupied households shrank by 400,000.

•  E.B. Tucker, editor of The Casey Report, saw this coming six years ago…

In 2009, E.B. took a big portion of his own portfolio and bought rental housing. He was convinced that the housing crash would create a “generation of renters.”

Here’s E.B.:

In 2009 interest rates had been falling for almost 30 years. We all know what happened at the end of that period. Lending got out of control. Zero money down… interest-only loans… ultra-low teaser rates. These crazy lending schemes were available to almost anyone. If you had a pulse, you could own a home.

That’s what the end of a cycle looks like. You see extremes that in hindsight look ridiculous. I knew we were about to enter a long period where more people would choose, or be forced, to rent instead of buy. So I took a significant portion of my portfolio and bought rental homes when they were very cheap.

E.B.’s investment in rental housing has paid off. Rent prices have gone on to new highs since the housing crisis. Median rent in the US is now a record $803/month for a one-bedroom apartment.

Chart of the Day

Rental rates in the US have never been higher.

Today’s chart shows median rental rates in the US from 1988 to present.

As you can see, rental rates never had a huge decline like housing prices did in 2007-2009. Instead, rental rates merely stopped rising for a few years.

But since 2011, rent prices have been climbing and setting new highs every year.


Justin Spittler
Delray Beach, Florida
August 03, 2015