Major Japanese Home Builder Acquires MDC for $4.9 Billion

One of Japan’s largest homebuilders is expanding further into the U.S. as lower mortgage rates have brought buyers back into the market.

Sekisui House said on Thursday that it would acquire M.D.C. Holdings, a top 10 builder in the U.S., in an all-cash transaction valued at $4.9 billion. MDC shares surged 18.3% on Thursday to $62.83, near the $63 shareholders would receive.

The deal, which is expected to close in the first half of this year, will make Sekisui the fifth largest home builder in the U.S. based on the number of houses closed in 2022, according to the companies. Sekisui bought Woodside Homes in 2017, and the MDC purchase will add to its U.S. portfolio.

Home builder stocks have been on a tear. The S&P Homebuilders Select Industry Index surged 45% over the past 12 months, more than double the S&P 500’s 21% gain. Industry leaders like D.R. Horton and Lennar have risen even more in the same period, up 64% and 55%, respectively.

High mortgage rates held back many homeowners from listing their properties, and the tight supply of existing homes have pushed more potential buyers to newly built properties. Many home builders have delivered record revenue and earnings per share in the past year.

Despite the price gains, Toll Brothers CEO Douglas Yearley told Barron’s that homebuilding stocks deserve an even higher valuation, arguing the industry is better managed and less economically sensitive than it previously was.

As mortgage rates retreat from a 7.79% reading in October, home buyers who were previously priced out of the market have started re-entering again. U.S. mortgage applications for home purchases rose 10.4% in the week ended Jan. 12, from the prior week, according to the Mortgage Bankers Association. The average 30-year fixed mortgage rate was 6.60% as of Thursday, down from last week’s average of 6.66%, Freddie Mac said.

Home builders are keeping pace. In December, new-home construction came at a seasonally adjusted annual rate of 1.46 million. Although that’s a 4.3% drop from November following a sharp climb, the number is 7.6% higher than a year ago.

Meanwhile, building permits, an indicator of future construction, increased by 1.9% in December from the previous month to an annual rate of 1.50 million, or 6.1% above year-ago levels.

Home builder confidence surged in January —for the second consecutive month—to the highest level in nearly a year, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Wednesday.

By leveraging Sekisui House’s technologies and cutting-edge building practices, MDC expects to deliver higher quality houses to enhance its position in the U.S. market, the companies said in a statement.

“Demand for quality homes in the U.S. market remains high and MDC will expand our ability to serve customers in key U.S. states that are poised for continued growth,” said Toru Tsuji, CEO of SH Residential Holdings and executive officer of Sekisui House, in a statement.

Source: Barron’s

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