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According to the newest figures from the S&P/Case-Shiller house index, home prices were up 12.1% over the year ended in April. The Federal Housing Finance Agency reported a slightly more modest 7.4% increase over the same period, but the general theme was the same -- success. The western edge of the country is benefiting the most, according to both reports, but it's not just home sellers who are reaping the benefit of increased prices.
Business in the home improvement and decoration game are also seeing strong growth as the housing market recovers. In particular, Restoration Hardware (NYSE: RH ) , Sherwin-Williams (NYSE: SHW ) , and Home Depot (NYSE: HD ) are making out like bandits -- if bandits broke into your house and fixed things for a small fee.
The value of a house
The reason these companies are benefiting from increased prices is twofold. First, as housing prices increase, more homes will come onto the market as potential sellers decide that the value in their home is worth unlocking. That means that more homes will come into new hands, and those homes will require renovation like painting and decorating.
The second factor is that as home prices drive up home sales, they also drive up new home construction. As The Motley Fool's own John Maxfield covered last week, the housing market's recovery is giving homebuilders reason to celebrate. That means more love for Home Depot and other building-supply retailers.
Make it look nice; make it yours
Restoration Hardware is making a killing off home redecorating. The company announced its first-quarter results earlier in the month, and the results were stunning. Comparable sales rose 41% year over year, and revenue was up 38%. On the company's last earnings call, co-CEO Gary Friedman referenced the housing recovery as a great chance for the company to expand its direct catalog business. Direct sales accounted for 47% of total revenue last quarter.
Once your house is full of new stuff, you might want to slap some new color on those dingy walls. Sherwin-Williams has been more than happy to help since 1866, when the company was founded. Last quarter, comparable sales increased 3.2% year over year, while total sales rose 1.4% over the same period. As the recovery continues, I expect Sherwin-Williams to continue to climb.
Finally, Home Depot has been storming it over the past 12 months. The stock has risen 45%, compared with a 21% increase in the S&P 500. The company has focused on cutting costs while appealing to consumers. Last quarter, operating income rose to 10.9%, with the company announcing that it plans to hit 12% by 2015.
The bottom line is that rising house prices are making everyone better off, and even if you're not in the market for a new pad, you can still benefit from the overall economic gains. Keep an eye on these three businesses and their competitors, and look for more good news as the year goes on.
With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!