Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

The Two Faces of Housing: The Home Depot, Inc. (HD) and More

Page 1 of 2

Two sides have formed in the current housing outlook. One says we’re set up for a big rebound. The other says, don’t hold your breath — housing could flatline for years.

Who is right?

Both could be, because they’re often talking about completely different topics.

The Home Depot, Inc. (NYSE:HD)I’ve written about this before, but it’s really important: Housing construction is on track for big rebound. At 780,000, housing starts last year were about a third below the rate of household formation. Harvard’s Joint Center for Housing Studies estimates household formation will average 1.5 million through 2020. To meet those projections, new home construction needs to more than double from current levels (housing starts typically run slightly above household formation due to demolitions and structures lost to fires, natural disasters, etc.). This is where housing has the potential to boom. It can drive economic growth and revive the homebuilding sector, which can likely look forward to several years of double-digit earnings growth. NVR, Inc. (NYSE:NVR) is a quality homebuilder to keep an eye on. The Home Depot, Inc. (NYSE:HD) is another obvious name that will benefit.

Pushing along the rise in construction is low and dwindling levels of existing home inventory:

When inventory is as low as it is and construction has been as dead as it is, you need a period of above-average production to make up for the gap. As value investor Bill Miller recently told the Financial Times:

He [Miller] says there is a big structural demand for homes due to a growing population and a lack of building during the bust, when fewer than 500,000 new homes a year were built. The long-term trend is for 1.4m to 1.5m new homes a year, so to catch up “we probably need to get to 2m housing starts at some point in the next five years”.

Housing prices are a different story. Aside from a few regional discrepancies, it is almost never rational to expect real home price appreciation over time. Yale economist Robert Shiller’s data says it all:

From 1890 to 1990, nationwide real home prices actually declined slightly. Construction boomed during most of that period, mind you, but prior to the bubble last decade, rising real prices were almost never part of market dynamic. Expect more of that going forward, Shiller told me in an 2011 interview:

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!