We've been seeing the data come in over the last year: new housing starts at multi-decade lows, demand passing supply, home values ticking up. It's a hard fact to swallow, given the last five years -- but housing is on its way back up, folks. Time is running out, though, as the market is starting to catch on. If you want to make a bullish play on housing, now is the time.
You may have heard that the U.S. economy grew a little slower than we wanted it to -- 1.5% in the last quarter, to be exact. But if you take a look at the Residential Fixed Investment growth rate -- a metric the Commerce Department uses to measure housing -- it's a much more attractive 9.7% annual growth rate. And if that doesn't impress you, that 9.7% growth in the second quarter is coming off 20.5% growth in the first quarter! I'm sorry, housing nay-sayers, but this sector is making a big leap forward.
As far as new home construction goes, homebuilders started more new projects in June than any month since the financial crisis. I wouldn't go as far to say that the state of the average household is improving as dramatically, but it doesn't seem to be. As suggested by mega investors such as Bill Ackman and Warren Buffett, the housing market has no choice but to improve as years went by without new homes being built while the U.S. population was growing. At some point, new homes needed to be built.
Hedge your bets
Without creating too much exposure to possible downturns, there are a few places to put your money in the game. The obvious pick for many is Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) . For over a year now, Warren Buffett has been prophesizing the return of housing and steering his company's portfolio accordingly. After upping his stake, 15% of Berkshire Hathaway's stock portfolio is in Wells Fargo (NYSE: WFC ) . Wells is in ripe position to bank serious profits from a housing rebound, as the company owns a third of the U.S. mortgage market. While most megabanks have been desperately trying to stabilize and strengthen balance sheets, Wells Fargo has become twice the company it used to be -- literally. After taking in Wachovia and increasing its mortgage portfolio, Wells Fargo has doubled in market cap.
Buffett was spot-on with his Wells Fargo bet -- essentially a bet on housing, but even more of Berkshire is in on the big secret.
More Berkshire, less problems
Berkshire and similarly structured Leucadia National (NYSE: LUK ) have a 50/50 joint venture, Berkadia, that is at the ready for the great housing numbers to translate into profits. Berkadia is a loan servicer, and with Berkshire's aggressive courting and probable acquisition of the ResCap mortgage portfolio, Berkadia is going to have a lot to do. With a big chunk of business coming through the door for the servicer, both Berkshire and Leucadia will reap the benefits -- but Leucadia even more so. As a smaller company with more skin in the game than Berkshire, Leucadia could see substantial gains from the massive purchasing power of Buffett.
And just like Buffett, the Leucadia leadership is big on housing. The holding company also owns lumberyards. Lumber is a major raw ingredient in many homes.
A basket of homes
Warren Buffett is often quoted saying if he could buy a basket of single-family homes, he would. I would argue he has basically done that with the Wells Fargo investment and his other housing bets, but you have yet another option to buy some homes.
If you aren't convinced any one housing play is deserving of your retirement dollars, check out the SPRD S&P HomeBuilders industry-tracking fund (NYSE: XHB ) . I am generally not the biggest fan of funds, as I believe with adequate research the individual can not only match, but in many cases surpass their returns. But, if time and interest limit your ability to do the research, this would be a great way to jump on the housing train. The fund is coming up on doubling its 52-week low as homebuilders such as Lennar and KB Homes are posting encouraging numbers.
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