How old is your house? The average U.S. residence was built 42 years ago. That compares with 31 years as recently as 2005. The share of houses built in the past 10 years has dropped from 18% in 2014 to 13% today. New home construction starts are lower than they were in 1970, even though the population has increased by 140 million.
We’re just not building enough new places to live. A big problem is that state and local zoning laws are so strict. Current residents tell their elected representatives they don’t want their communities crowded with newcomers on quarter-acre lots.
Lately, three other obstacles have developed: First, to sell your current home and buy a new one, you will probably have to trade a low-rate mortgage for a loan of 7% or more.
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Second, construction costs have soared because of tariffs on materials such as lumber and worker shortages exacerbated by immigration enforcement and the boom in data-center building.
Third, the squishiness of the economy in general has not been kind to home prices, which have fallen in real (after-inflation) terms for 13 straight months.
A languishing housing market
Residential sales are slow. Prices aren’t low enough to beckon potential buyers or high enough to inspire potential sellers. The S&P Select Industry Homebuilders Index has returned an annual average of just 7.3% over the past five years, compared with 13.8% for the full S&P 500 Index. Over the past 12 months, the Homebuilders index trails the S&P 500 by 28.1 percentage points. (Prices and other data are as of September 30.)
All of this bad news, however, is already baked into stock prices, which means investors may have some attractive opportunities. Warren Buffett and his successor as CEO of Berkshire Hathaway, Greg Abel, seem to think so. From the beginning of 2025 through September 2026, Berkshire purchased 11% of Lennar (LEN) — as the stock price dropped from $126 to the low $80s.
Lennar — one of the largest homebuilders, with a market value of $20 billion — has lost more than half its value over the past two years and trades at a price-to-earnings (P/E) ratio of 16. It still has a strong balance sheet and an established footprint in good markets, such as Florida, Texas and Tennessee.
In July, under Abel, Berkshire acquired Taylor Morrison, a builder headquartered in Arizona, for $8.5 billion (including assumption of debt). I recommended the stock early in the COVID pandemic in 2020 at less than one-third the price that Berkshire paid. Berkshire also owns chunks of my longtime favorite, Virginia-based NVR (NVR), as well as Texas-based D.R. Horton (DHI), the largest homebuilder by revenues.
NVR shares have fallen by about one-third in two years, while Horton has done a bit better. The fact that Berkshire is buying homebuilders should give you some confidence, but remember: It has made mistakes (US Airways!), and it has a long investing time horizon.
(Image credit: Dan Brouillette/Bloomberg via Getty Images)
I can’t be sure when Americans will get back to buying homes, so these are indeed stocks for the long run. What I do know is that home building will revive. Demography demands it, and so do technology, economics and politics.
The homeownership rate peaked in 2004 at 69%. It’s now 65% and falling. Pressure is building on politicians to adopt what Arthur Gailes and Edward Pinto of the American Enterprise Institute call “housing abundance” policies, with more state legislatures considering rules that allow smaller lots and proposals in Congress for home-buying tax credits.
As for technology: Goldman Sachs calculates that productivity in home building has declined since 1965 at an average rate of 0.6% a year while rising in the whole economy at 1.6%. We can certainly figure out how to build houses faster, cheaper and better. Perhaps the shortage of workers will speed that up.
If home building — and buying — has stalled, you might think that renovating would benefit. But people spend a lot of money when they move to a new home, not necessarily when they’re stuck in their old one. In addition, higher interest rates hurt renovators, who often have to borrow.
As a result, the stock of Home Depot (HD), the world’s dominant home-improvement retailer, serving both do-it-yourselfers and contractors, has performed miserably, down 29.1% over the past year and more than $140 per share off its late-2024 high. Its smaller competitor, Lowe’s (LOW), has suffered similarly.
Home Depot is a behemoth. Its $284 billion market cap is double that of all 19 publicly traded homebuilder stocks combined. In August, the company announced its 158th consecutive quarterly dividend, but it was frozen (like the housing market) at the previous rate. Still, the stock yields a decent 3.2%.
HD is a good way to play a residential real estate recovery, and even if home sales seriously slide, homeowners will still be getting their maintenance needs filled from the chain’s 2,364 stores.
Is real estate investing right for your portfolio?
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Consider a real estate fund
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Home Depot is one of 35 companies in the portfolio of the State Street SPDR S&P Homebuilders ETF (XHB). The exchange-traded fund weights its assets equally, so a few stocks don’t dominate. The fund owns the big homebuilders but also makers of heating and cooling systems and window glass, as well as retailers of paint, kitchenware and household appliances.
There is no pure homebuilder play among funds, but with this ETF, which carries an expense ratio of 0.35%, nearly all of the components will benefit from my thesis that housing will make a comeback.
The other large industry ETF, iShares U.S. Home Construction (ITB), with expenses of 0.37%, has a similar portfolio of about three dozen stocks, but it’s mainly market-cap-weighted and uses a formula that gives preference to homebuilders. So the five biggest builders account for about half the fund’s assets, while Home Depot and Lowe’s make up only 8% combined.
Despite their differences, the two funds have produced roughly the same mediocre five-year average annual return of a little under 7%.
A much smaller choice, Hoya Capital Housing (HOMZ), with expenses of 0.30%, owns a highly diversified, evenly weighted, balanced portfolio of 100 companies, which includes a few unusual gems. Homebuilders and building-materials companies represent roughly 30% of the ETF’s assets, as do apartment real estate investment trusts (REITs), including Welltower (WELL), a fast-growing business that specializes in senior living.
The balance of the stocks is in home improvement and furnishing companies, mortgage lenders, even self-storage REITs such as Public Storage (PSA), one of my all-time favorite stocks because it keeps raising its rents on customers (like me) who can’t face the chore of moving or throwing out their stuff.
But like Hoya, I digress. My point is simple: I can’t tell precisely when, but housing is surely going to make a comeback. If you agree, get on board.
James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. He owns none of the securities listed here. You can reach him at JKGlassman@gmail.com.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
