Real Estate – Now’s The Time To Start Buying The Homebuilders
The Dynamic Wealth Report
April 17, 2009
Time To Start Nibbling At The Homebuilders
by Robert Morris, Editor
I’m sure many of you are wondering if I’ve lost my mind. Our
financial system is teetering on the brink. Our economy is in the midst
of the worst recession since the Great Depression. The markets are down
more than 40% from their all time highs. And, I’m suggesting you invest
your hard earned dollars in one of the hardest hit industries?
I must be crazy… crazy like a fox that is.
Remember, the stock market is always looking to the future. Investors
are constantly discounting expectations about future events into today’s
stock prices.
We see examples of this phenomenon every day.
A stock moves higher on expectations the company will post better
earnings than analysts expect. A stock dives because an economic report
suggests the company’s business will suffer.
You get the point.
Understanding this key market principle can make a huge difference in
your investment returns. By training yourself to think like the markets,
you can spot long-term trends as they’re developing. (And, that’s when
you make the big money.)
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Long term trends are serious money-making opportunities you can’t afford
to miss. A few well-timed investments can be the difference between
early retirement and no retirement.
I think a new long-term uptrend is just beginning in the homebuilders.
Savvy investors who climb aboard this trend early stand to make a
fortune. But, more on that in a moment.
First, let’s take a look at the state of the homebuilding market.
At first blush, the March report on new home construction is anything
but positive. Housing starts fell almost 11% during the month after
jumping more than 20% in February. The March figure is the second lowest
level on record. It’s just ugly…
But, the report does have a silver lining.
New construction of single family homes – the biggest part of the
housing market - held steady again in March. It was a huge decline in
multi-family homes (apartments and condos) that caused the March drop.
With single family home construction finally stabilizing, it appears the
decline in homebuilding is starting to bottom out.
Homebuilders are optimistic the tide is turning.
A key measure of homebuilder confidence levels jumped 50% in April, the
biggest monthly gain since May 2003. Driving the surge in confidence was
their outlook for sales over the next six months. They believe low home
prices, lower mortgage rates, and generous tax credits will lure more
buyers off the sidelines.
All of this suggests the homebuilders’ worst days could be behind them.
In fact, David Crowe, chief economist for the National Association of
Home Builders was quoted as saying, “[t]his is a very encouraging sign
that we are at or near the bottom of the current housing depression.”
And, the market is starting to factor this into stock prices.
The SPDR Homebuilders ETF (XHB) has jumped more than 50% from its March
low to around $12. And, they still have a long way to run. XHB would
have to more than double just to reach its 52-week high near $25.
Clearly, investors are starting to look through the negative data and
seeing sunnier days ahead. The time is now to establish a position in
XHB. Start small and don’t be afraid to add to your position on any
dips.
You may have to show some patience as you wait for the recovery to
develop. But, at least, you’ll collect some dividends along the way. XHB
is currently yielding 3.45%. (Nothing wrong with getting paid while you
wait.)
Remember, it’s better to be early than late to this party. The
homebuilders are a cyclical industry that tends to surge when the
economy starts to recover. If you wait until the all clear signal is
sounded, you’ll miss a big part of it.
***Editor’s Note: To really take advantage of what’s
going on in the market right now, be sure to take a look at Brian and
Corey’s Elite Option Trader strategy. 3 of their last 5 picks have at
least doubled- and it looks like this could continue for some time.
Click here to read the FREE report…
• DryShips (DRYS) was upgraded by Oppenheimer to
an “Outperform” rating. The bulk shipping rates are off their lows from
a few months ago.
• Sohu.com (SOHU) was downgraded by Deutsche Securities
to a “Sell” rating. The Chinese internet company seems to be doing well,
and a recent IPO in the space has drawn investor attention.
• Citigroup recently initiated coverage on Superior Energy
Services (SPN). The company provides specialized oilfield
services equipment.
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