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How To Make Money From The Housing Rebound

Updated on November 4, 2019
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How To Make Money From The Housing Rebound

How To Cash In On The Housing Recovery In The United States
How To Cash In On The Housing Recovery In The United States

The collapse of the United States housing market bubble during 2005 and 2006 caused a slump in housing prices that lasted until early 2012. The collapse in housing prices led to a great amount of economic turmoil in the United States after 2006, which culminated in the financial crisis and Great Recession of 2009 and 2009.

By mid 2012, there were tepid signs that the real estate market has\d stabilized in many parts of the United States and was poised for a rebound. Since then, housing prices have recovered, albeit unevenly across the United States. This housing recovery presents lucrative investment opportunities for long term investors willing allow time for the housing market and investments in financial securities related to the housing market to recover.

Financial Securities That Could Make Money From The Housing Rebound

Historically, housing prices in the United States have risen over time. Prior to the housing price bubble top of 2005 and subsequent steep housing price decline associated with the deep recession of 2008 and 2009, housing prices in the United States have only fallen during times of extreme economic contraction, such as the Great Depression of the 1930s. It is reasonable to assume that over time the economy and housing real estate market in the United States will recover and housing prices will start rising again. Perhaps future increases in housing prices will be limited by a lower population growth rate in the United States and other macro factors, such as lower rates of household formation and slower rates of income gains for the middle class, but it is safe to assume that eventually housing prices will begin to rise in the United States and financial securities related to the housing market will recover.

There are numerous ways to potentially make money form the housing rebound in the United States, including holding financial securities, such as stocks and exchange traded funds (ETFs), that should increase in value as the housing market recovers and demand for the products and services they offer increases. While nobody knows for certain when the bottom in housing real estate prices will be reached in the United States, an eventual recovery in real estate prices is bound to occur, and therefore now may be the time for long term investors to position their investment portfolios tomake money from the housing rebound. Some of the stocks and ETFs that could appreciate in price during the housing rebound have the additional benefit that they pay periodic dividends to their shareholders. This means as investors can collect dividends while they wait for the housing market to rebound and their housing related financial securities holdings to eventually appreciate in price.

The following are housing related financial security investment ideas that include home builder stocks, home building material and product supplier stocks, and home improvement store stocks. These companies make money from the housing market in various ways, and should have improved financial performance, as the United States housing market recovers in coming years. For investors that would rather invest more broadly in the eventual housing recovery and not expose their investment portfolio to individual company stocks, housing related ETFs may be a safer way to play the housing recovery. Housing related ETF investment ideas are also provided below.

Home builder stocks to play the housing recovery:

  • Toll Brothers Inc (NYSE: TOL)
  • Lennar Corporation (NYSE: LEN)
  • KB Home (NYSE: KBH)

Home improvement stocks to play the housing recovery:

  • The Home Depot, Inc. (NYSE: HD)
  • Lowe's Companies, Inc. (NYSE: LOW)

ETFs that primarily hold shares of stocks involved in housing include:

  • iShares Dow Jones U.S. Home Construction Index Fund ETF (NYSE: ITB)
  • SPDR S&P Homebuilders ETF (NYSE: XHB)
  • PowerShares Dynamic Building & Construction Portfolio ETF (NYSE: PKB)
  • iShares FTSE NAREIT Mortgage Plus Capped Index (NYSE: REM)

Find a House and Make it Into a Beautiful House

Fixing Up a House is One Way to Profit From Real Estate
Fixing Up a House is One Way to Profit From Real Estate | Source

Make A Direct Investment In Real Estate To Make Money From The Housing Rebound

Some investors would rather buy something more tangible than stocks and ETFs that are related to the housing market. For investors interested in investing in hard assets, a direct investment in real estate now may pay off handsomely in the long run, as the housing market recovers and eventually returns to normalcy, which would mean higher housing prices in the years to come. In some parts of the United States, the cost of owning a home is at a low point when compared to the cost of renting a similarly sized home. Buying real estate now could be a good long-term investment and provide a home to live in, rather than throwing money away on rent and paying off someone else’s mortgage.

Another option for direct housing real estate investing, if one is not inclined to buy a home to live in, is buying a home to rent out to tenants. Being a landlord does come with some risks and burdens, such as not being able to get tenants or having to deal with tenants that cause damage to one’s property. However, if a home is purchased in an area with high tenant demand, finding tenants should not be problems. Tenants can pay off one's mortgage on an investment property that could be a very lucrative investment in the long run, as the housing market recovers. For a price, brokers can be hired to find and screen suitable tenants, and maintenance people can take care of a home, lifting the burden of finding tenants and maintaining a home off of the property owner. This approach will reduce any potential profits from rental income, but could pay off in the long run if the home is well maintained and can be sold for top dollar in a future seller’s housing market.

A third option is a combination of the first two: buy a duplex or multi-family home, live in a unit within the home and rent out the other unit(s) to offset the cost of paying the mortgage on the home, real estate taxes, and home maintenance costs. This third option is not for everyone. For it to work, one must be ready to be a landlord that is motivated to interact with tenants to take care of issues that arise, since one’s tenants will be living next to them. However, for those inclined to live in such an arrangement, it can be a financially rewarding way to own a home and have tenants pay the mortgage off. As home prices and rents appreciate over time, such an arrangement could prove to be very lucrative.

Words of Warning Regarding Investing In Anticipation Of The Housing Rebound

It should be noted that stocks, ETFs, and homes that appear to be cheap can always get cheaper. Many bottoms in the United States housing market have been predicted since 2005, and so far those housing market bottom calls have been proven to be wrong. However, in 2012 there are real signs in parts of the United States that an uneven housing recovery is starting to take hold, with some areas seeing housing price gains, while other areas continuing to see flat or slightly falling housing prices.

Those considering investing in real estate financial securities or hard assets should keep in mind that any slowdown in the United States economy in the second half of 2012 or 2013 could cause the tepid housing rebound in housing to stall or reverse. This could cause stocks and ETFs associated with the housing market and home prices to fall in value. However, with a growing population and an economy that will eventually find its footing and grow, it is only a matter of time before demand for housing causes a sustained rebound in real estate prices in the United States and solid increases in revenue and potentially profits for companies involved in the housing market. Investors with a long-range investment horizon have numerous options to position themselves to make money from the housing rebound that will take hold eventually.

Disclaimer: This article was not written by a financial professional or a registered financial advisor. This article is for informational purposes only, and is not intended to be solicitation or recommendation to purchase any stocks, ETFs, securities or real estate mentioned herein. Please consult a registered financial advisor to ensure you understand the risks and rewards associated with buying and selling stocks, ETFs, mutual funds, other financial products, and real estate.

Value Plays For A Housing Rebound

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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2012 John Coviello


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