I’ve heard from multiple sources that new home construction is going to be hit hard this year, what are some ways this can be played?

Hey everyone!

Due to previous jobs I've held, I have a few friends who own residential construction companies here in the SE US. They've all been facing price increases and shortages, but from conversations I've had with them recently, it's starting to hit a drastic turning point.

Last year it was mainly lumber shortages and price increases across the board for raw materials. This year though, they've all seen prices stabilize and settle down a bit, but the shortages are increasing rapidly and across a wide range of industries in construction. Here's just a few things they've told me are backlogged:

  • Sand
  • Corner beading
  • Conduit
  • Vinyl Siding
  • Cinder blocks
  • Drywall

Mid-last year the backlog for a lot of these items was around 1-2 months, and they were usually able to secure some needed supplied from HD or Lowes. Right now though, it's more like 6-8 months and almost every big box store is sold out or drastically limited.

In their own words: “Something will have to change soon, a collapse or a dip in the industry, otherwise these new developments that are cropping up will come to a grinding halt by the middle of the year, because we just can't get supplies out.” Alarmist? Maybe, but I'd like to see if I can play this position at all.

I imagine taking some long puts in a few residential construction companies or materials stocks? $MTH, $TPH, $LEN, $KBH, $EXP were my first thoughts. I'd love to hear any ideas or opinions!


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