3 Macro Indicators Predicting a Real Estate Rally

In what can only be considered a hallmark week for real estate, new macro indicators have given further validity to the hope that the housing market is solidly improving. Read below for the good news, as well as five different companies poised for profit.

Homebuilders lovin' it
Yesterday, the National Association of Homebuilders released their monthly housing market index report, up again for the fifth consecutive month. The index measures homebuilder's perception of current and future sales, as well as prospective buyer traffic.

At a solid 40, the index hasn't measured this high since 2006. The index measured improved perception across the country, with the strongest gains in the West and Midwest. Even with steady gains, the sub-50 rating still means that the majority of homebuilders remain more pessimistic than optimistic about the housing market.

Steady starts and existing homes
Although housing starts fell short of expectations, the 750,000 new home constructions in August represent a solid 2.3% increase from last year's numbers. Single-family homes carried the bump, up 4.5% from last year compared to multifamily homes' 5.5% decrease. Housing permits met expectations, coming in at 803,000 for August and giving hope for further steady increases in starts in the months to come.

Increases in single-family housing starts have uncharacteristically lagged homebuilder confidence for much of this year. Hopefully, these newest numbers will put builder perceptions more in line with actual real estate indicators and pave the way for steadier sectorwide investments.

Improvements on new home construction and sales don't mean a thing if existing homes sales are floundering. Fortunately, a report released today provides plenty of fodder for real estate faith. Existing home sales jumped 7.8% to an annual rate of 4.8 million.

This is the second straight month that sales have improved, and the newest data from August harks back to sales numbers not seen since a brief upward spike in early 2010.

Is this a dream?
As an investor, all this news might seem like information overload. Real estate stocks have by and large been soaring over the last year, and many investors are wondering if it's too late to put their chips on the table. In my opinion, I think not. To put things in perspective, let's take a look at the S&P/Case-Shriller Home Price Index, which measures changes in the value of residential real estate in the United States.

Case-Shiller Home Price Index: Composite 10 Chart

Case-Shiller Home Price Index: Composite 10 data by YCharts

The tiny little bump up at the very end of this index represents this year's gains in real estate value. When you compare that to the upward trend exhibited up through 2006, there's arguably plenty of room for real estate to grow. I'm certainly not advocating for artificial inflation like we saw in the last years leading up to the housing crisis, but steady growth that reflects a more confident market.

Investing options
When it comes to real estate, there are a variety of investing angles to choose from. If you think that existing home sales are the sector's stalwart, consider buying shares of home improvement companies Home Depot (NYSE: HD  ) or Lowe's (NYSE: LOW  ) . These corporations provide materials for home renovations and keep existing homes livable and increasingly valuable.

If you'd rather invest in new homes, construction companies KB Home (NYSE: KBH  ) and PulteGroup (NYSE: PHM  ) are worth looking into. PulteGroup's stock has risen nearly 300% in the last year, in conjunction with a 50% jump in net income. These companies are the middlemen between housing permits and housing starts, both of which have increased significantly in the recent past.

Finally, for all you "creative destruction" believers out there, a new type of company has emerged from the rubble of the recent housing crisis. Online tech company Zillow (Nasdaq: Z  ) is attempting to empower real estate customers to make smart purchases with smart data. Its website and "Zestimates" allow browsers to connect with the best brokers and find the most competitive mortgage rates around.

This week, two wonderful things happened: The Smithsonian Zoo's adult panda unexpectedly gave birth to a four ounce baby, and the real estate market did an equally unexpected triple macro somersault. You can't invest in pandas, but you can invest in the housing market's recovery. Pick your favorites, make your investments, and watch your portfolio reap returns in the years to come.

Fool contributor Justin Loiseau owns shares of Zillow. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, TMFJLo.

The Motley Fool owns shares of Zillow. Motley Fool newsletter services have recommended buying shares of Zillow and The Home Depot. Motley Fool newsletter services have recommended writing covered calls on Lowe's Companies. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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