The housing market is definitely on the mend. Depending on how you want to slice the cattle, you can make a lot of money. I think though that not every investor is interested in or willing to take on an inordinate amount of risk. Because of this, I am going to lay out some key macroeconomic indicators, and get to the meat of the argument as to whether or not investors should even have a position in housing stocks.
The economics, can’t ignore these
The trend is your friend and the housing market is picking back up again. In certain areas of the United States, the amount of money spent on a mortgage is cheaper than the price of rent. Assuming that the number of people employed increases and the economy continues to recover, the housing recovery should be well on its way.
Source: Federal Reserve
Going forward, the real gross domestic product is projected to grow at a 2.3% to 2.5% rate. If that is the case, investors should position themselves in housing because the housing stocks would appreciate rapidly in a cyclical economic rebound.
KB Home just announced earnings
KB Home (NYSE:KBH) reported a fairly strong quarter. The company was able to increase its revenues by 73% year-over-year (this is a significant improvement; I wonder where all the bears went on this one.) The company is continuing to recover.
The company’s deliveries were up by 39% year-over-year, and the average selling price of homes grew by around 25% year-over-year. The company’s property backlog is up by an additional 19%. Perhaps back logs are up because investors are fearful of missing out on the next leg-up in the property market.
The company reported a loss of $0.04 per share versus a year-ago period loss of $0.31 per share. It also reported net income growth. Because revenues were up by $221 million, costs were comparatively up by $197 million. The net difference between the two was what contributed to the company’s net income. Analysts on a consensus basis were anticipating the company to report a $0.06 loss for the quarter, but KB Home (NYSE:KBH) beat analyst estimates by $0.02.
Investable insights & another alternative
Investors should consider buying a home. Ignore bonds and enjoy the safety of an appreciating real estate portfolio. Now I’m not saying that a home should be your only investment; I am saying that homebuilders are selling homes for ever higher prices. You want to buy on an up-trend. The trend is your friend, after all, and it is obviously the time to own a bit of the American dream.
If owning a home is a little bit risky, however, why not consider The Home Depot, Inc. (NYSE:HD)? The company is exposed to the housing sector through home improvement sales. After someone buys a home there’s usually a lot to fix, a lot to upgrade, and a lot to buy. Everything from gardening improvement, paint changes, pipe fixes, toilet replacement, and counter top changes can all be done at The Home Depot, Inc. (NYSE:HD).
The company’s stock currently trades at a bit of a hefty valuation (with a 20.5 forward earnings multiple.) In 2012, the company was able to grow its earnings per share by 21.5%. The growth in earnings was driven by operating profit margins improving by 93 basis points to 10.39%. The company also repurchased $4 billion in shares, which also contributed to earnings-per-share growth.