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Since the US equity market bottomed on March 23, shares of U.S. homebuilder companies have enjoyed a spectacular 50% rally, beating the S&P 500’s gain of 30% during the same period. MRP believes homebuilder will continue to outperform due to 7 factors that have emerged as tailwinds. As such, we are re-affirming our Long US Homebuilders theme.

Related ETF: iShares U.S. Home Construction ETF (ITB)

Cheap mortgages, low inventories, and a robust economy with almost-full employment presaged a strong year ahead for U.S home sales just two-and-a-half months ago. How quickly conditions have changed in the wake of the coronavirus lockdown. The U.S. economy has lost more than 20 million jobs since then, the unemployment rate has tripled to 14.7%, and barely more than 40% of the country’s adult population has jobs at this point.

The one silver lining gleaned from Friday’s labor market report stems from the fact that, among the recently unemployed, 8 of every 10 people reported being on a temporary layoff, which means most of these workers expect to get their jobs back. While many of these temporary layoffs will certainly become permanent, there’s hope that the unemployment rate will decrease more quickly than in a normal recession when all the unemployed end up being permanent job losers.

The housing market, in the interim, has experienced the double whammy of a demand and a supply shock occuring at the same time. Economic uncertainty and mandatory distancing guidelines squashed demand, interrupted construction activity, and prompted sellers to withdraw their sales listing. Transactions dried up so quickly that, by the fourth week of the lockdown, sales of newly-built home were down 85% from normal spring activity…

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