Four Ways to Profit from the U.S. Housing Recovery
The American Dream has taken a beating over the past few years, after the housing bubble burst and the subsequent market crash. But that’s all in the past now—or so it seems. The idea of home ownership is back on the table for a growing number of Americans.
The Department of Commerce reported that new-home sales climbed 2.1% in May compared to April—the highest level since July 2008. While the sales of new homes (476,000) remain below the 700,000 annual rate that’s considered healthy, they’re still up 29% year-over-year. The median price of a new home sold in May was up 3.3% year-over-year, at $263,900. (Source: “New Residential Construction in May 2013,” U.S. Census Bureau web site, June 18, 2013, last accessed June 28, 2013.)
Keeping the optimism alive, the National Association of Realtors (NAR) said that more Americans signed contracts in May to buy previously owned homes than at any other time in more than six years.
Total existing-home sales in May were up 4.2% to a seasonally adjusted annual rate of 5.18 million versus 4.97 million in April. Total existing-home sales are also up 12.9% over the 4.59 million recorded in May 2012. The NAR noted that the strong growth is unsustainable unless new home construction starts increase by 50%. (Source: “Existing-Home Sales Rise in May with Strong Price Increases,” National Association of Realtors web site, June 20, 2013.)
The Standard & Poor’s Case-Shiller Index showed that existing-home prices in 20 U.S. metropolitan areas were, on average, 12.1% higher in April than a year earlier. San Francisco led the way at 23.9%, with Las Vegas a close second at 22.3%. (Source: “Home Prices Set Record Monthly Rise in April 2013 According to the S&P/Case-Shiller Home Price Indices,” S&P Dow Jones Indices web site, June 25, 2013.)
After tanking more than 30% nationally after 2006, it’s not a real surprise to see that the U.S. is experiencing some sort of housing rebound. At some point, the only direction left to go is up.
And despite the raft of good news, home prices are still 25% below pre-recession highs. You could either take that to mean that the U.S. economy is still fragile, or, if you’re an optimist, that home prices have a lot more room for growth.
For investors looking to make money on the U.S. housing recovery, there are a number of different channels to take. If you think new construction is going to continue to be robust, you could consider diversified timber and lumber real estate investment trusts (REITs) like Rayonier, Inc. (NYSE/RYN) or Weyerhaeuser Company (NYSE/WY).
Those looking for secondary offerings that might benefit from a housing recovery could start looking at companies like home improvement juggernaut Lowes Companies, Inc. (NYSE/LOW) or home security provider The ADT Corporation (NYSE/ADT).
But for now, sales of new and pre-existing homes are expected to remain robust, in spite of rising interest rates—or, rather, with the help of rising interest rates. Many first-time homeowners may be trying to jump onto the property ladder before interest rates start their inevitable rise.