Sekisui House, one of Japan’s largest homebuilders, is making further strides into the U.S. market as lower mortgage rates entice buyers back into the real estate scene. In a significant move, Sekisui House announced its acquisition of M.D.C. Holdings, a top 10 builder in the U.S., in a cash transaction valued at $4.9 billion.
The market responded positively to the news, with MDC shares surging 18.3% on Thursday to reach $62.83, close to the projected $63 value per share for shareholders. The acquisition is anticipated to be finalized in the first half of this year, propelling Sekisui to become the fifth largest home builder in the U.S. In 2022 alone, the company closed numerous housing deals, and this purchase of MDC will further strengthen its already impressive U.S. portfolio.
Notably, home builder stocks have experienced remarkable growth with the S&P Homebuilders Select Industry Index soaring 45% over the past year, surpassing the S&P 500’s 21% gain. Key players in the industry like D.R. Horton and Lennar have seen even more substantial increases, with their stock prices rising by 64% and 55%, respectively.
The surge in home builder stocks can be attributed to high mortgage rates deterring homeowners from listing their properties and the scarcity of existing homes on the market, leading potential buyers to turn their attention to newly constructed properties. The past year has witnessed numerous home builders achieving record revenue and earnings per share.
Douglas Yearley, CEO of Toll Brothers, believes that homebuilding stocks should be valued even higher, emphasizing that the industry is now better managed and less susceptible to economic fluctuations than in previous years.
Mortgage Rates Drop, Encouraging Home Buyers to Return
The recent retreat of mortgage rates from a high of 7.79% in October has prompted previously deterred home buyers to re-enter the market. According to the Mortgage Bankers Association, U.S. mortgage applications for home purchases increased by 10.4% in the week ended Jan. 12 compared to the previous week. On Thursday, the average 30-year fixed mortgage rate stood at 6.60%, down from the previous week’s average of 6.66%, as reported by Freddie Mac.
Home Building Industry Adapts
In an effort to keep pace with the increased demand, home builders have been active. Despite a 4.3% drop from November, new-home construction in December reached a seasonally adjusted annual rate of 1.46 million. This figure is still 7.6% higher than the previous year.
Furthermore, building permits – an important indicator of future construction activity – increased by 1.9% in December compared to the previous month, reaching an annual rate of 1.50 million. This represents a significant 6.1% increase over year-ago levels.
Surge in Home Builder Confidence
Home builder confidence has seen a significant surge in January, marking the second consecutive month of growth and reaching its highest level in almost a year, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Wednesday.
Sekisui House and MDC Join Forces
In an effort to capitalize on this promising market, MDC, in collaboration with Sekisui House, will utilize cutting-edge building practices and technologies to deliver higher quality houses. The companies aim to enhance MDC’s position in the U.S. market, where demand for quality homes remains high.
According to Toru Tsuji, CEO of SH Residential Holdings and executive officer of Sekisui House, “MDC will expand our ability to serve customers in key U.S. states that are poised for continued growth.”