Real estate prices look to have hit a bottom. As I've previously discussed, now may be a great time to buy a house, if you have the available capital. But if that's not an option for you, there are several ways to take advantage of shifting economic trends in the real estate market.
While the financial and stock market crash of 2008 erased a lot of appetite for new building, appetite for housing is returning. According to the Daily Herald:
"We had a terrific March, better April, and May is going to be the best closing month since 2006," says [Los Angeles real estate agent] Mark Prather. Closings are up 50 percent this year from the same period of 2011.
It's a similar story across the country. Business is being driven by pent-up demand - many people had put off buying since before the recession.
Even better, it's not just the housing market seeing a comeback -- things are changing industry wide. Appetite is coming back. Via the LA Times:
An intense demand for apartments is the biggest driver of development, as the improving economy supports the formation of new households. But offices, warehouses and stores are also being built, according to real estate brokerage Marcus & Millichap.
"We haven't had any meaningful construction of any type since 2005 or 2006," said Hessam Nadji, managing director of research at the brokerage. "A new cycle is beginning."
So how can you get in on a piece of the action?
1: Basic Materials
My love for the chemicals sector is unwavering. I'm pretty high on chemicals. Chemical companies like Dupont (NYSE:DD) and Dow Chemical (NYSE:DOW) are responsible for manufacturing many of the coatings, sealants, and solvents needed for building properties. As such, they're set to profit as homebuilders buy up materials. Basically, any company in the business of making anything that eventually ends up in a house is in a good position. Other investing ideas include paint manufacturer Sherwin Williams (NYSE:SHW), which has had a huge stock rally as of late.
ETFs like Claymore Global Timber (NYSEARCA:CUT) and iShares Global Timber and Forestry (NASDAQ:WOOD) track the lumber industry. Materials Select SPDR (NYSEARCA:XLB) is a more general alternative for broad industry exposure.
As you can see from the chart above, stock prices in homebuilders like Toll Brothers (NYSE:TOL) has been struck down after peaking in 2005, consistent with the statement of Hessam Nadji in the intro. The charts for Standard Pacific Corp (NYSE:SPF), Meritage Homes (NYSE:MTH), The Ryland Group (NYSE:RYL), D.R. Horton (NYSE:DHI), MDC Holdings (NYSE:MDC), and Lennar Corporation (NYSE:LEN) show similar trajectories.
If new construction starts to significantly pick up, these companies will be poised for significant stock appreciation.
Conclusion: Real Estate Presents Buying Opportunities
I'm already invested in the chemicals sector and in an REIT, and I'm looking to expand my real estate exposure. Over the rest of the summer, I'll be analyzing some of the companies mentioned above to see if they fit my investment criteria.
(Standard disclaimer: perform due diligence before making any investment to see whether it's suitable for your financial circumstances and goals.)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I am long the Vanguard REIT ETF (NYSEARCA:VNQ) and the Fidelity Select Materials Portfolio (MUTF:FSDPX). I have no individual positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours, although I may initiate positions in one or more of the stocks mentioned in the future.