TRG | The Bottom Line – 10/14

“Coming off the Mountain” was the title of our Q3 Residential Products Survey this week. As mortgage rates hit a 20-year high, doubling from just a year ago, the report provides timely feedback from resi building product distributors across the nation. The backlog of unfinished homes will wind down in Q4 and likely be near zero by the end of Q1’23. A common theme voiced from our contacts was a solid finish to close 2022, a sharp pullback in resi starts into the first half of 2023, yet R&R and multifamily work still resilient. Some feedback even suggested a possible pick-up in resi activity in the backhalf of the year. Investors, however, aren’t waiting to find out how bad 2023 might be as TRG’s Household Goods & Services group has declined 36% YTD on average. Ultimately, we believe the shortage of homes will drive strong operating results for these companies – which makes us long-term bullish on the group and see the sharp sell-off as an investment opportunity. Besides, Wile E. Coyote always used a big fall as an opportunity to better his long-term strategy!