How to Profit from Housing Turnaround? – Part 1

So finally we are seeing a turnaround in the fortunes of Housing industry. The home sales have started to stabilize and it is applicable to existing home sales, new home sales and housing starts. This is reflected in the today’s news that home-builder sentiment remained at its highest levels in nearly five years. The existing home inventory is down by  20.6% year over year and it has been going down for almost 5 months. The existing homes sales have ticked up in 4 out of last 5 months. The new home construction has gone up from 300K to 550K in last few months. The Builders started construction of 698K homes in Feb 2012. Though this is 1.1% less than the 706K construction starts in Jan 2012, but the drop was expected.  This was confirmed by analyst at BMO Capital Markets.

The rise in home sales is in line with macro economic bullish uptrends. Let’s look at few of them.

1. The economy has added 1.2 million jobs in last 6 months. This is the fastest rate of job creation since 2006.

2. GDP growth rate seems to have firm footing now. The growth reported in last quarter started to return to its historical, pre crisis level of 3%.

3. Rents have started to creep up in almost all the metro areas. Infact there has been shortage of rental properties in few parts of the country.

4. The mortagage rates are at historically low levels.

5. And the most importantly – bargain home prices are driving hordes of renters to home ownership.

Now the question arises. Where all do we invest to generate wealth from this turnaround? I am not telling you what Mr. Buffett said few days ago – buy homes. But the approach towards selection of the investment vehicle has to be similarly meticulous, so that you don’t end up bidding higher price.