July 31, 2021
We all know the housing market is HOT right now…
“For sale” signs are popping up everywhere, only to be slapped with an Under Contract notice almost immediately.
And almost a month later, the housing industry isn’t showing any indication of slowing down.
Today, we’re sharing expert financial analyst Scott Garliss’ story on how to take advantage of this booming sector right now. Scott has spent more than 20 years trading for some of the top investment banks in the country, including First Union Securities, Wachovia Securities, Stifel Nicolaus, and FBR Capital Markets.
He joined Stansberry Research in 2017 and writes the real-time free market blog, Stansberry NewsWire.
Triple Your Returns by Taking Advantage of This Sector’s Upswing
When the housing market’s booming, you can bet the whole economy is, too…
Housing is one of the most important drivers of overall economic activity. The National Association of Home Builders estimates that residential investment and housing-related consumption typically accounts for roughly 15% to 18% of annual gross domestic product.
And the housing boom translates to more growth for related businesses, too, like furnishings, lighting, and lawn service, among others. All that spending equals new jobs and better wages, aiding domestic output. That, in turn, will provide new energy and support for the current economic cycle.
Recent data tell us housing market momentum continues to build… U.S. homebuilders right now can’t throw houses up fast enough to meet demand. That has sent prices skyrocketing.
But if you think you’ve missed the opportunity to take advantage of this trend… don’t worry, you haven’t. As you’ll see, Americans have more than enough money to chase those ever-higher prices – making this a great time to invest in the sector.
Pending home sales jumped 8% in May from the month prior, according to the National Association of Realtors (“NAR”). The NAR’s pending home sales index now sits at 114.7, marking the highest level since May 2005.
May’s increase was a major surprise to Wall Street, which had expected a 1.5% decline. The reading also surprised NAR Chief Economist Lawrence Yun, who noted a sudden erosion in home affordability. However, Yun said low mortgage rates, which remain at or below 3% in some parts of the country, continue to pull prospective buyers into the housing market.
And when we dig below the headline data, it’s increasingly clear that housing is only going up from here – at least for a while – for three reasons…
- There simply aren’t enough homes in America to meet demand.
Sales of newly constructed homes fell 5.9% from the month prior, to an annualized rate of 769,000 according to the Census Bureau. That was below Wall Street’s estimate of 817,000. It also marked the third decline in the last four months.
Existing home sales saw a similar story. NAR reported a 0.9% drop from 5.85 million sold in April to 5.8 million in May. However, that exceeded analysts’ expectations for 5.73 million existing home sales.
Low inventory is capping sales due to the inability to satisfy demand. The increased number of buyers competing for the same property is driving prices up. That’s forcing some buyers out of the market and means they’re waiting for a pullback in order to pounce.
- Prices are soaring everywhere in the country, not just a few hot markets…
The cost of a house is up nearly 25% from this time last year according to the Census Bureau. The figures hit a record-average price of $350,300 in May. (That’s because of the low inventory we just mentioned.)
Reuters noted that at the current pace of sales, available housing inventory would be exhausted in 2.5 months – versus 4.5 months at the same time in 2020.
- Finally, folks have plenty of money to keep buying… and pushing prices up.
Half of all buyers in April used a conventional mortgage, according to the Wall Street Journal. In other words, they put at least 20% down. That’s only happened three times before – all in the last year.
Despite that the number of transactions is falling, availability will remain an issue. And price gains are more than offsetting the decline… which means it’s going to remain a seller’s market.
This former Goldman Sachs banker urges you to take these four vital steps right now to preserve your family’s wealth while you still can.
Big Gains Await This Housing Fund
That’s why the Invesco Dynamic Building & Construction Fund (NYSE: PKB) should continue to outperform in this environment.
This fund invests in 30 domestic companies involved in construction or related services for the residential building and remodeling industries. The index members are integrated into all aspects of building, like electrical work, cement for foundations, construction, and interiors.
PKB has climbed more than 50% over the past year. But if history is any indicator, large gains still lie ahead. Because even if home prices were to decline, sales momentum is going to continue. In fact, a dip in prices could spur more home purchases …
Let’s look back at the housing market in 2013 for our most recent example. That year, home prices hit the high-water mark in March. And they remained in steady decline for the next six years. But that wound up being a tailwind for the building industry. You see, all of those buyers, who had been sitting on the sidelines due to a lack of affordability, began to jump back in as housing prices dropped.
Take a look at this chart of house prices versus new home sales. Even though prices stayed relatively steady, with some seasonal volatility (the yellow line), sales continued to surge… nearly doubling from the low in 2013 over the next six years.
And as sales picked up, so did the momentum for the building industry. The Invesco Dynamic Building & Construction Fund tracked home sales almost perfectly…
I point to the environment in 2013 because it’s very similar to the one we’re in today. At the time, the domestic economy was in recovery mode from the financial crisis. The Federal Reserve had provided tons of support through quantitative easing.
But in 2013, that was coming to an end. By the end of the year, the Fed would begin to reduce the amount of monthly bond purchases it made until its first interest rate hike in 2015. That would align with the current discussion at the central bank.
And, as you can see in the charts above, peak home prices in early 2013 created an industry tailwind for the next four years. From March 28, 2013, through the end of 2017, the Invesco Dynamic Building & Construction Fund gained 72.9% on a total return basis (dividends reinvested).
That’s around 19.4% annually. When you consider the S&P 500 Index has averaged around a 7.7% return per year since 1928, by investing in PKB, you’re nearly tripling your rate of return. And based on tighter supply versus demand metrics, investors aren’t crazy to imagine their results could dwarf the returns the sector posted between 2013 and 2017.
So the housing market’s strength isn’t over just yet… The supply-and-demand metrics tell us pricing is likely to hold up for some time to come. And that should continue to fuel margins and profits for the construction industry.
At the end of the day, this strength should keep supporting the steady upward momentum in the sector, providing you with the opportunity to cash in.
Love us? Hate us? Let us know at [email protected].
Publisher, American Consequences
With Editorial Staff
July 31, 2021