{"id":28058,"date":"2012-03-08T06:50:02","date_gmt":"2012-03-08T11:50:02","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/03\/08\/the-next-boom-profiting-from-a-housing-recovery\/"},"modified":"2012-03-08T06:50:02","modified_gmt":"2012-03-08T11:50:02","slug":"the-next-boom-profiting-from-a-housing-recovery","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/08\/the-next-boom-profiting-from-a-housing-recovery\/","title":{"rendered":"The Next Boom: Profiting from a Housing Recovery"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

\"\"<\/a>Last week, I announced to the world what a momentously bad investment I had just made (see \u201cI just made a horrible investment<\/a>\u201d).<\/p>\n

Yes, dear reader, I was dragged kicking and screaming against my will into homeownership by my wife and two-year-old son.\u00a0 My days of enjoying my Saturday mornings as an urban yuppy, drinking freshly-ground French press coffee and reading the weekend edition of the Financial Times<\/em> on the patio of my Dallas Uptown highrise, are over.\u00a0\u00a0 Instead, they are spent at the local Home Depot (NYSE: $<\/span>HD<\/a>) <\/strong>buying rope and tools to hang a tree swing.<\/p>\n

Men who pound away on financial calculators for a living have no business being within 100 yards of a Home Depot. \u00a0We don\u2019t have the foggiest clue what we\u2019re doing, and we end up spending small fortunes on tools we don\u2019t need and have no idea how to use. And after buying it all, we generally abandon the project halfway through and end up paying a professional to redo it all.<\/p>\n

I bring all of this up for an important reason.\u00a0 The housing market has a disproportionately large impact on the health of the economy.\u00a0 <\/strong>In addition to the obvious construction and mortgage finance industries that directly benefit from the construction and sale of homes, virtually every other industry benefits as well from an overall higher level of consumption.\u00a0 When you own your dwelling, you tend to spend a lot more money on the things that go in it.\u00a0 This would include furniture, appliances, electronics, decorations and artwork, and\u2014yes\u2014even tree swings.\u00a0 Many of these purchases (though probably not the tree swings) are purchased on credit.\u00a0 Thus housing and credit booms go hand in hand.<\/p>\n

Of course, this also works in reverse. The U.S. economy has been in the dumps since the bursting of the housing bubble, with consumer spending and retail sales growth tepid at best.<\/p>\n

All of this is about to change, and the catalyst will not be another stimulus bill or quantitative easing.\u00a0 It will be demographics.<\/p>\n

As a \u201cthirty something\u201d member of Generation X, I\u2019m actually a little late to the homeownership party.\u00a0 Knowing full and well what a terrible \u201cinvestment\u201d a personal residence is, I put it off as long as I could until family considerations made further delay all but impossible.\u00a0 My generation is small relative to the one that came before it\u2014the Baby Boomers\u2014and the one that came after it\u2014the Echo Boomers.\u00a0 And our impact (or lack thereof) on the housing market has already been made.<\/p>\n

It is the Echo Boomers that should have property developers salivating.\u00a0 These children of the Baby Boomers, born in the 1980s and 1990s, form a generation even larger than that of their parents.\u00a0 And they are quickly entering their peak marriage and family formation years.<\/p>\n

The settling down of the largest generation to date will create unprecedented demand for starter homes and rentals.\u00a0 Meanwhile, new supply has all but disappeared in the wake of the bust.\u00a0 New home construction hit its lowest levels on record last year\u2026breaking the record lows of the year before and the year before.<\/p>\n

It may seem absurd to talk about given the foreclosure backlog that still plagues the market, but in a few short years we may actually have a housing shortage<\/strong><\/em>, at least in the cities attracting these new families.<\/p>\n

It\u2019s too early for me to recommend that readers buy homebuilders based on these fundamentals, and in any event homebuilder stocks have already had a phenomenal run.\u00a0 The SPDR S&P Homebuilder ETF (NYSE: $<\/span>XHB<\/a>)<\/strong> has nearly doubled in less than six months, and homebuilders tend to be wildly volatile.<\/p>\n

\"\"<\/a><\/p>\n

Figure 1: SPDR S&P Homebuilders<\/p>\n<\/div>\n

The best course of action would be to build a portfolio of entry-level rental properties.\u00a0 While your principle residence is a terrible investment (it\u2019s a major drain on cash flow), rental properties are an entirely different story.\u00a0 If bought correctly and at reasonable prices, they generate a positive cash flow every month that is tax advantaged.\u00a0 Depreciation and other charges ensure that much (if not all) of your cash income is tax free.\u00a0 And real estate is a more reliable hedge against inflation than precious metals like gold or silver.<\/p>\n

\"\"<\/a>No less an authority than Warren Buffett<\/strong> would appear to agree.\u00a0 The Economist<\/em> recently quoted the Sage of Omaha as saying that he would buy \u201ca couple hundred thousand\u201d homes if it were practical for him to do so (see \u201cHolding Back the Spring<\/a>\u201d).<\/p>\n

Investors without the patience or the bankroll to buy a portfolio of rental properties can settle for apartment REITS or for the stocks of companies that cater to a recovering housing markets such as Home Depot or rival Lowe\u2019s (NYSE: $<\/span>LOW<\/a>).<\/strong><\/p>\n

Oh, and about that tree swing.\u00a0 It took me four hours of cursing and swearing, but I finally got it hung properly.\u00a0 My two year old son loves it.<\/p>\n<\/p>\n

This article first appeared on MarketWatch.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter Last week, I announced to the world what a momentously bad investment I had just made (see \u201cI just made a horrible investment\u201d). Yes, dear reader, I was dragged kicking and screaming against my will into homeownership by my wife and two-year-old son.\u00a0 My days of enjoying my Saturday mornings as … <\/p>\n

Continue reading “The Next Boom: Profiting from a Housing Recovery”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-28058","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28058","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=28058"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28058\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=28058"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=28058"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=28058"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}