Nick Hodge,
Publisher
Dec. 28, 2021
Housing has many bullish factors in its favor.
For one, rates remain historically low and have weakened again after a bit of strengthening in 2021.
Yes, housing has already gone up quite a bit. You know that from home prices where you live. You can also look at the S&P Homebuilders Select Industry Index, which has outperformed the S&P over the past three years.
But the fundamental factors driving housing can push it higher still.
Inventory is still historically low. There is currently only a two months’ supply of single-family homes. The number is usually twice that and has been as much as ten months’ supply ahead of recessions.
Home prices are at all-time highs and yet mortgage credit availability remains well below pre-pandemic levels.
What’s more, those who are buying homes have excellent credit. Of the ~$1.1 billion mortgage originations last quarter, nearly three quarters were from buyers with credit scores over 760. Ahead of the mortgage crisis in 2007/2008, only ~25% were from buyers with such good credit. This alleviates the worry that the sector is overheated.
You also have a millennial generation hitting their peak homebuying years. And there are many more of them (~95 million) than boomers (~65 million). They are set to keep inventories low and prices strong for a few more years.
How to play it?
There are several ways to invest in housing.
You can of course own a house. Or more than one.
In the stock market, the sector gets divided up between real estate investment trusts (REITs), home improvement, homebuilders, title insurers, building products, mortgage insurers, and real estate services.
You can buy funds that track the entire sector or individual companies within them.
One easy way to get exposure to the entire housing sector is to buy the SPDR S&P Homebuiders ETF (NYSE: XHB), which tracks the S&P Homebuilders Select Industry Index.
It owns primarily building products and homebuilding companies. Here it’s weighting as of year-end 2021.
You could also buy the Real Estate Select Sector SPDR Fund (NYSE: XLRE), which owns real estate investment trusts in the industrial, residential, storage, and other sub-sectors.
Or you can buy individual companies and funds that are set to outperform the entire sector.
That’s what my premium research is meant to help you do.
It outlines how I’m allocating my own capital. And this month, I’m recommending two specific real estate-related plays.