Warren Buffett just revealed that he would buy up millions of single-family homes � if there was a practical way to do it.
It�s downright impossible for a billionaire like Buffett to place a bet on the housing market. But an individual investor could see sizable gains in this beaten-down sector. And you don�t even have to buy real estate to get involved.
Instead, I�ve pinpointed a simple way for you to capitalize on the first signs of a potential housing recovery. Better yet, you can buy the small stocks in this group � while billionaire fund managers have to let the opportunity pass them by…
Before I get into the details, let me be clear: I�m not saying that the housing market is ready to boom again. And we�re certainly not looking an early 2000s-type run in home prices again anytime soon. In fact, many experts are predicting at least two years before the market truly regains its footing.
After all, negative news surrounding the housing market continues to command front-page coverage. It�s been all too easy for the media to pile onto the countless human interest stories in the most-affected regions of the country. Foreclosure horror stories, entire abandoned neighborhoods and abusive bank practices remain top stories in the financial and mainstream media alike.
On the surface, housing sector data does not look any brighter. The Case-Shiller index � which measures property values in 20 major cities � showed in its most-recent data that home prices dropped 3.7% year over year.
However, I am seeing several signs pointing toward improved conditions for the homebuilding sector.
Even Case-Shiller index co-creator Karl Case sees the silver lining in the numbers. Case told Bloomberg last month that the seeds of recovery have already been planted because homes are becoming affordable again. Add in record-low interest rates, and you have a reason to be hopeful about housing.
Cheaper prices are not just helping the average home buyer. Home builders have also used depressed prices to their advantage. Many have snapped up cheap land and prices that would have been unheard of just a few years ago, according to Investor�s Business Daily. They�ve also cut their costs and modified operations to sustain their businesses in a post-bubble economy.
According to The Associated Press, builders broke ground on a seasonally adjusted annual rate of 699,000 homes last month. This milestone puts the seasonally adjusted rate at its highest level since October 2008. These glimmers of hope for the housing market have ignited a stealth rally within the sector.
Right now, we are seeing the bottoming process play out. While it would be completely unrealistic to expect anything even close to housing bubble conditions reappearing, we believe there is opportunity in this space.
There�s value to be found in some of these beaten-down home builders. Even though conditions will remain far from perfect for some time, many of these stocks could find higher ground. The monumental bust that buried every single one of these stocks back in 2008 is beginning to wear off. It has taken more than five years for these stocks to stabilize � but it is happening.
What it all comes down to is expectations. Rather than dreaming of boom times, home builders are instead looking toward sustainable growth after years of decline. We can follow these expectations by tracking the National Association of Home Builders/Wells Fargo index of builder confidence.
The index hit 29 in February, rising for the fifth straight month. The last time the index increased for at least five months in a row was April-October 1995, according to Bloomberg. This improvement has gone virtually unnoticed � mainly because an index reading of less than 50 indicates that respondents find conditions in the housing market to be unfavorable.
In almost every category, home builders are seeing improvements. Sales expectations for the next six months advanced to its best reading since 2007. The same goes for buyer traffic, according to Bloomberg. This metric also recorded its best numbers in five years.
This is where my backdoor way to play the early stages of the home-building rally comes in. I recommend staking out the smaller, regional companies in the home builder supply sector. These are the companies that manufacture lumber products, vinyl windows, and doors. With business steadily improving for home builders, the suppliers in the best-performing regions stand to make early investors substantial profits.
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