Why The Real Estate Boom Has A Decade To Run

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Includes: CLAW, DHI, HOML, ITB, IYR, LEN, NAIL, PHM, PKB, XHB
by: The Mad Hedge Fund Trader
Summary

Homebuilders are a screaming buy.

Rising rents forcing millenials into buyers, increasing demand.

Inventory shortage (12 days in Silicon Valley) fueling the price increases.

I hear that Apple (AAPL) is planning on building a second new research and development campus that will need 20,000 new high-tech workers which shows you the tightness of the real estate market.

The housing crisis here in the San Francisco Bay area just went from bad to worse. It is all fresh fuel for a continuation in the bull market for US residential real estate, not just for this year but for another decade or more.

Although prices seem high now, I am convinced that we are only at the beginning of a long-term secular bull market in housing. Anything you purchase now is going to make you look like a genius 10 years down the road.

The best is yet to come. The big driver will be demographics, of course.

From 2022 onward, 65 million Gen Xers will be joined by 85 million late blooming Millennials in bidding war for the same houses. That will create a market of 150 million buyers, unprecedented in the history of the American real estate market.

In the meantime, 80 million baby boomers, net sellers and downsizers of homes for the past decade, will slowly die off and disappear from the scene as a negative influence. Only one third are still working.

The first boomer, Kathleen Casey-Kirschling, born seconds after midnight on January 1, 1946, will become 76 years old by then. A former school teacher, she took early retirement at 62.

The real fat on the fire here is that 5 million homes went missing in action this decade, thanks to the financial crisis. They were never built.

This is the result of the bankruptcy of several homebuilders, and the new found ultra-conservatism of the survivors, like D.R. Horton (DHI), Lennar Homes (LEN), and PulteGroup (PHM).

Did I mention that all of this makes this sector a screaming "BUY"?

Talk to any real estate agent and they will complain about the shortage of inventory (except in Chicago, the slowest growing market in the country).

Prices are so high already that flippers have been squeezed out of the market for good. Bottom feeders, like hedge funds buying at the bankruptcy auctions, are a distant memory. Some now own more than 40,000 homes.

And let's face it, ultra-low interest rates aren't going to be here forever. Borrow at 3% today against a long-term 3% inflation rate, and you are essentially getting you house for free.

The rising rents that are turning Millennials from renters to buyers may be the first sign of real inflation beyond the increasingly pricey healthcare and higher education that we're already seeing.

And Millennials are having kids that demand a bigger living space! Who knew?

I may become a grandfather yet!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.