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Valyooo (99.82)

What's the best way for somebody like me to invest in housing recovery?

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12

March 22, 2012 – Comments (22) | RELATED TICKERS: KBH , BAC , AVB

I really think housing is starting to recover for real.  Permits are rising, mortgage rates are rising, population is increasing, buffett likes it, I notice less people are scared, and a lot of recent grads are looking to buy, and rates are still low.  Plus, the dollar is so weak, and this is one of the last hard assets to rise.  So, for those reasons I want to invest in housing.  Lets leave this part of the discussion out...I don't want to debate on if housing is cheap or neutral or expensive.

Anyway, since I am 22 and have only been working full time for 7 months, I don't have a lot of savings.  I could afford a 3% down payment on a condo, but I live in NYC, and the monthly payments would be very high.  It would be worth it in the long term due to appreciation of the hosue, and I can write off the interest...but it would leave me with little disposable income, and if something were to happen to my job, it would be a nightmare.  Plus, I don't want to live here for more than a few years.

So, I need a financial asset to invest in housing.  All of the REITs I see are either commercial (not the same) or multi-family (kinda the opposite of what I want...sales recovery = bad or neutral for rental).

So, I was thinking of buying BAC...they are leveraged to housing, and are way off their highs.  But I don't trust management, and people tell me they hate BAC, so I think the rest of the business model is terrible.

I was thinking of buying homebuilders, but I don't know if that makes sense either.  The demand is there, but there is a lot of supply too.  A lot of unoccupied homes increasing in value adds nothing to the bottom line for homebuilders.  Plus historcially, homebuilders are late to the party.  They only make a ton of money when the economy is in super-boom mode.

 

So is homebuilder stocks my best option, or is there an asset class I am missing, or a stock I am missing, etc?  Any and all suggestions, backed up by an explanation, would be greatly appreciated!

22 Comments – Post Your Own

#1) On March 22, 2012 at 12:29 PM, SkepticalOx (99.43) wrote:

See this: "The case of the 14-year-old homeowner". She didn't need much and bought out a foreclosed in Florida to rent out. Quite impressed if you ask me.

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#2) On March 22, 2012 at 12:59 PM, valuemoney (99.99) wrote:

test....comments are not posting

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#3) On March 22, 2012 at 1:22 PM, valuemoney (99.99) wrote:

jeepers I hope all of the comments dont come up their will be like 10 of them sorry if they do

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#4) On March 22, 2012 at 1:27 PM, valuemoney (99.99) wrote:

I will try this comment for a 3rd time.

The S&P in general is the way to play the housing recovery. Look at my comments I made earlier today on explainstuff's pitch on GLD so one can see my thinking in general. Now for a specific stock.

BRK.B.......full disclosure I purchased it this week...here is why as it relates to this blog.

Who owns one of the biggest homebuilders? Berkshire

Who owns warrants of BAC that gets to be converted @ $7.14? Berkshire

Who owns a ton of share of many well run finacials (WFC,AXP,USB) that will greatly benefit from a housing recovery and economy? Berkshire

Who owns a railroad that will ship a ton of goods (BNI)? Berkshire

Who operates in the best interest of their shareholders? Berkshire

Who will repurchase shares when it trades below 110% of book value? Berkshire.......*A shares book is around 100k and price is around 120k

Who's book has grown at 19% annually (WOW!) since it started (and I know it will not be as high going forward)? Berkshire

I won't even get into all the other great business they own outright or have a stake in but you get the picture. This is why I bought it.

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#5) On March 22, 2012 at 1:28 PM, valuemoney (99.99) wrote:

That took like an hour to post......lol

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#6) On March 22, 2012 at 1:41 PM, valuemoney (99.99) wrote:

explainstuff  is the CAPS member and my comments are under his GLD pitch. I just wanted to post the name so one could just click on it it go to the CAPS members page.

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#7) On March 22, 2012 at 2:10 PM, MegaShort (99.95) wrote:

I agree with valuemoney, BRK-B is a great choice for a housing rebound.

Also, I think BRP is probably the best residential homebuilder.

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#8) On March 22, 2012 at 2:27 PM, Valyooo (99.82) wrote:

I guess BRK-B isn't a bad choice...but I was looking for 1) maybe something more direct 2) something not as big...I can't imagine BRK-B growing at like 14% a year any longer, but maybe I am wrong.

 

Megashort, can you explain why you like BRP as the best?  Or would it be too long to explain or like something you have to be in the industry to understand.  Thanks though, I will at least green thumb it in caps for now.  But do you think builder stocks are good for housing recovery even though there is a glut?

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#9) On March 22, 2012 at 2:33 PM, MegaShort (99.95) wrote:

http://www.brookfieldrp.com/

Spun off by Brookfield, so they probably have above average management and financial position.

http://howardhughes.com/ 

Howard Hughes Corp (HHC) is another company to watch. They are a residential and commercial developer with a strong development pipeline.

I own shares of BRK and HHC.

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#10) On March 22, 2012 at 2:44 PM, MegaShort (99.95) wrote:

As floridabuilder said, NVR and TOL are the highest quality builders (he left CAPS before BRP was spun off).  Brookfield's financial position is not as good as those two, however earnings the last 3 quarters have been strong.

BRP trades at significantly lower price to sales and price to book compared to NVR and TOL. Based on being part of Brookfield I would bet they have solid management (unlike say BZH or HOV who are horrible).

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#11) On March 22, 2012 at 2:44 PM, Valyooo (99.82) wrote:

Do you own any BRP?

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#12) On March 22, 2012 at 3:02 PM, MegaShort (99.95) wrote:

No, it would have been nice to buy it last year but it wasn't on my radar yet.  I haven't read their financial statements yet.

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#13) On March 22, 2012 at 3:27 PM, leohaas (93.93) wrote:

I am not so sure home builders are the way to play a recovery in housing. I put my thumbs up on quite a few here on CAPS, but they haven't performed as expected. That should be no surprise considering how many homes are on the market (and how many will still come on the market due to foreclosures).

So it could be that people will be buying existing homes rather than new ones. Most folks will spend some money renovating an existing home not long after buying it. That bodes well for home improvement companies such as Home Depot (HD) and Lowes (LOW). It could also be good for companies that sell furniture or that make appliances.

If you want broad exposure to home builders and suppliers, I suggest buying XHB. This is an ETF. Its top-10 holdings as of 2/29/2012 were:

Whirlpool Corporation Common St     WHR  5.11
Tempur-pedic International Inc            TPX    5.05
Select Comfort Corporation               SCSS  4.80
PulteGroup, Inc. Common Stock       PHM   4.70
Masco Corporation Common Stock   MAS   4.26
Pier 1 Imports, Inc. Common Sto      PIR     4.18
M.D.C. Holdings, Inc. Common St    MDC   4.10
Lennar Corporation Class A Comm   LEN    4.01
Home Depot, Inc. (The) Common S   HD     3.98
Lowe's Companies, Inc. Common S LOW 3.83

 

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#14) On March 22, 2012 at 7:03 PM, valuemoney (99.99) wrote:

LL on a pullback. Do your own research on this one. Throwing out an idea here. I do not own it. I liked it a lot better when I green thumbed it a while back at a lower price. It may not get much cheaper though if house building picks up. I don't know a lot about it to be honest. Just looked at the 10 summary, balance sheet, income statement, growth rates ect. Just wanted to give you a pure play since you didn't like my BRK.B pick that much.

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#15) On March 22, 2012 at 7:16 PM, valuemoney (99.99) wrote:

I think LEN is the best homebuilder. I am no expert. But again this equities price has ran a lot since Aug. Sept. of last year. I would say in 3 years this equity will be a 8 to 9 billion dollar market cap (best guess). Another pure play is USG. Again huge run up in price. It will throw off a ton of cash when home builders have the same run rate as household formations though.

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#16) On March 22, 2012 at 7:37 PM, Valyooo (99.82) wrote:

It will throw off a ton of cash when home builders have the same run rate as household formations though.

 

What does that mean?  Im a housing noob

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#17) On March 22, 2012 at 7:53 PM, HarryCarysGhost (99.78) wrote:

Leo already mentioned it but HD was the stock I was looking at for a potential housing recovery.

But now that I think about it my pick would be V.

Think about it, when someone purchases a new dwelling theres constant purchases to furnish and upgrade said home. Said Dwellerer would probably be cash light after putting 20% down.

So they whip out the plastic, Visa collects the swipe fee and lets BAC worry about collecting.

(Full Disclosure- This is my favorite stock, and hell yeah!!!!!!!!! I own it :)

Cheers.

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#18) On March 22, 2012 at 9:53 PM, JakilaTheHun (99.93) wrote:

I've been playing it via Pulte (PHM), Howard Hughes (HHC), and Toll Brothers (TOL).  Only problem is that PHM and TOL have had an impressive run-up already.  HHC has also started to surge a bit.

I'm still long on all three, but they were definitely more attractive in Aug '11 when I was buying them like crazy, rather than now. 

Still think PHM is the best over the long-term.  People are underestimating how much market share they've gobbled up and how it will translate into higher profitability a few years from now when we see the market go back to over 1 million starts per year. 

Dodd-Frank and Obamacare also help the big guys.  It's unfortunate, but that's the reality. 

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#19) On March 22, 2012 at 10:49 PM, Valyooo (99.82) wrote:

Dodd-Frank and Obamacare also help the big guys.  It's unfortunate, but that's the reality.

 

In what way?  Serious question.  As I said...lots to learn for me.

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#20) On March 24, 2012 at 10:06 AM, valuemoney (99.99) wrote:

Dodd-Frank and Obamacare also help the big guys. It's unfortunate, but that's the reality.

BS... it helps the small guy. Thats why every republication hates it. Personally I don't like Dodd-Frank either. But this is the low down on it. Under the Bush administation congress and the senate thought it would be a good idea to lacks the rules on leverage for the banks and the people like GS, Morgan Stanley, Bear Stearns ect. Then many of them got WAY to overleveraged! People thought hose prices could never go down. Then the housing market crashed. Hence all of these banks and the like got caught with their pants down. Bills were due and they were levered to the teat. This is because the gov. thought these institutions could do better if rules were laxed. So there was no choice but to bail almost everyone out. Which was the right thing to do. Now the retarded demacrates have to go overboard the other way with over 2500 pages of bills that are way to complicated. Our system worked fine under Regan and Clinton.

I stated in another blog or comment. These new rules only need to be 2 pages long. And this is what a guy said on CNBC that work for BUSH was hired and then was fired because he thought the taxes cuts were not such a good idea and that he said he didnt think there were weapons of mas destruction. Jeepers.

Page 1

Everyone who buys a house needs to put 20% down no ?'s asked and that sheet need to be attached directly to the loan so it can not be altered by anyone.

Page 2

Banks ect. need to have 8 to 10% in capital reserves

Ask yourself if that was in place would the crisis have happened?

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#21) On March 24, 2012 at 10:29 AM, valuemoney (99.99) wrote:

O and the whole run rate and cash thing. 1.1 million new households get formed each year on average. Currently something like 550 thousand are being built or less because of the glut we are in. Pretty soon the excess will be sopped up and the only way for those 1.1 million people to get into a new home is 1.1 million will have to be built each year. Demand for wallboard will go WAY up from current levels not to mention PRICE increases. Look at USG last quarter... they successively passed on price increase already and housing isn't even getting started yet. I think they have a new lighter kind of wallboard they came up with last year and it is being well recepted by builders. Now USG is the lowest cost producer of gysum and that will lead to more profits when it comes down to the bottom line. Again I am no EXPERT. But I do have common sense. That is all anyone needs. Along with some basic math skill and be able to step back and look at the big picture. Look at my comments I can't spell worth a s***. I do not like USG as much as BRK.B as a investment though. One balance sheet is far better than the other.

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#22) On March 24, 2012 at 10:35 AM, valuemoney (99.99) wrote:

And BRK.B is trading at a much bigger discount to intrinsic value in my opinion. Good luck.

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