Housing Mania: The Coming Boom

Housing has healed from the bubble and bust from a decade ago. But with the largest generation of Americans, the Millennials, reaching the age of marriage and family formation, the housing industry is waking up to a supply problem.

There simply aren’t enough homes.

Inventory for existing homes is only at 3 months. 6 months is a balanced market. New home sales have also lagged as builders have been conservative not to overbuild, after getting burned a decade ago during the bubble.

Could This Be a Golden Era for Housing?

The supply and demand metrics are there. Baby Boomers are selling homes in the north to move to the sunshine. Meanwhile, Millennials are also on the move from city center apartments to single-family homes, often in the suburbs.

The home builders believe that the strong demand they have seen in the summer of 2020 for new homes is sustainable long after the COVID pandemic passes.

Lennar (LEN - Free Reportand Toll Brothers (TOL - Free Reportboth talked about the strong demand in all geographies on their recent conference calls.

Earnings estimates are up for the entire group, which sports Zacks Rank #1 (Strong Buy) or #2 (Buy) rankings.

There are several national home builders investors could consider in addition to Toll Brothers and Lennar, such as D.R. Horton (DHI - Free Report). Earnings are expected to be up 37% this fiscal year and another 11% next year.

It still has attractive valuations, with a forward P/E of just 12.

Look Beyond the Builders

While the home builders will be one of the big winners in the coming boom, there are other ways to play the bullish housing market.

All the ancillary businesses will benefit too including Home Depot (HD - Free Reportand the other kitchen, bath, and cabinet suppliers.

Those who manufacture paint, furniture, flooring, and appliances should also be on your list.

Instead of trying to pick the winners, why not buy a basket of the whole group, both builders and the side industries like the retailers, by buying the iShares US Home Construction ETF (ITB - Free Report)?

1 2
View single page >> |

In full disclosure, Tracey owns shares of MDC mentioned on the podcast.

Disclaimer: Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the  more

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.