A cold winter may be partially to blame for fewer new homes
being built in January. But the prospects for homebuilders remain
bright as we look forward to the rest of 2014.
New housing starts are currently 41% below their historical
norm. If new home building continues to recover, that will help
boost shares of U.S. homebuilder stocks.
SPDR S&P Homebuilders ETF (
has been a strong performer, rising 66% over the last two years.
But even after that rise, the homebuilders index trades at about
17 times last year's earnings. That's just a slight premium to
the S&P 500 index.
If you share my view that
new home construction will continue to rebound
with the American economy,
are a great place to be invested. You could simply buy the SPDR
S&P Homebuilders ETF… or you could consider buying a single
homebuilder stock that caters to the wealthiest Americans.
But before I tell you more about that stock, let's examine
what's happening in the housing market. Housing starts had a
hiccup in January. The Commerce Department reported last week
that U.S. housing starts - a measure of new homes being built -
fell 16% in January. That equals a seasonally adjusted rate of
The number of new homes being built today has recovered from
the lows of 2009 and 2010. But it remains far below the
historical norm. Since 1959, an average of 1.5 million new homes
have been built per year. That number runs slightly above the
number of new households being formed.
But since 2007, the number of new homes being built in the
U.S. has been below that long-term average. The reason is that
during the housing boom, builders were bullish and building far
more homes than the market would support. The chart below tells
the whole story.
Source: U.S. Census Bureau
The U.S. housing market is still healing from the housing boom
and bust. But you can see that new housing starts are already
More good news: Existing home prices are rising, too. In the
last quarter of 2013, home prices nationwide rose 11.3%,
according to the Case-Shiller Index. That was the highest
quarterly gain since 2005.
Those home price gains may slow in 2014 due to rising interest
rates. The combination of rising prices and higher mortgage rates
is making homes less affordable for those on the fringe.
But for wealthy Americans, houses remain quite affordable.
Even though interest rates are up since last May, they remain
near historical lows.
, I've been recommending just one housing stock. This company
builds McMansions and sells homes to a very affluent customer
Earlier this week, the company reported strong quarterly
earnings. The number of homes sold increased by 24%. Meanwhile,
the average selling price of a home was nearly $700,000. That
average price was a 22% increase over the last year!
How many businesses do you know that can raise their prices so
much? The likely answer is very few. But if you're selling
expensive homes to the wealthiest Americans, apparently you can
raise prices significantly.
Those results helped contribute to a 52% increase in revenues
for this housing stock. Meanwhile, the company's profit increased
Subscribers to my
have already captured nearly 50% profits from this housing stock.
But I think that there is lots of upside from here. That's
why I included this stock on my
Conviction Buy List
in the February issue of the
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