As spring finally seems like a reality, I’ve realized I have a lot of yard work to do. And that inevitably has me thinking about the U.S. housing market as we enter the strongest season of the year for construction.
A recovering U.S. housing market bodes well for household wealth across the country. But it also opens the door for investors interested in allocating some portion of their portfolio to the housing market rebound.
To understand why I believe there will continue to be opportunities to invest in housing-related stocks over the next five years, we have to take a quick look at the housing market today. Let’s briefly discuss three charts that give a high-level overview of this critical part of the U.S. economy.
As the chart below from the U.S. Census Bureau shows, residential construction was absolutely clobbered in the middle of the decade.
At the peak of the residential construction boom in November 2005, 2.26 million homes were being built annually. When the residential construction market finally bottomed in March 2009, that rate had fallen by 77% to a meager rate of 513,000 homes annually.
Finally, residential construction is in an uptrend again.
The latest reading from February 2014 shows that the annual rate now stands at 1.014 million homes, nearly twice as many as we saw at the bottom. We’re not likely to get back above 1.5 million homes for a while, but that’s not what matters. What’s important is that the market has returned to growth, which is great for shares of home builders and building materials stocks.
At the same time as residential construction is rebounding, the value of existing homes has been going up. This is helping household wealth across the country return to where it was prior to the recession.
The rise in home values can be seen in the chart of the S&P/Case-Shiller National Home Price Index below. The top of the home price bubble came six months after the residential construction market peaked, when the home price index stood at 190. The actual bottom in prices didn’t occur until March 2011, by which point the home prices had fallen by 33.8%.
The latest reading from December 2013 shows that the index now stands at 150. While that’s still 21% below the peak, it’s a vast improvement from where it was. Prices have risen 21% from the bottom and are now back to where they were in September 2008.
Finally, let’s look at total construction spending in the U.S. so we can bring commercial construction into the discussion.
As the chart below shows, U.S. construction spending (including residential and commercial) has been growing 8% annually over the past three years. The latest reading in February 2014 showed that the seasonally adjusted annual rate of construction spending was $945.7 billion, an 8.7% increase over February of last year.
Total construction spending numbers show that in addition to a rebound in the residential market, the commercial market is quite strong, too. These are projects such as housing complexes, office buildings, big box stores and retail outlets.
These three charts show a healthy recovery in the U.S. housing and construction markets. If you believe, as I do, that these markets will continue to recover over the next five years, having a little exposure to housing in your portfolio is almost a no-brainer.
Next week I’ll discuss one emerging growth trend in the housing market that I’m particularly excited about. Keep an eye on your inbox.
Is this happening in your neighborhood?
It feels like robbery. Local governments are broke. But instead of cutting spending, they’re forcing homeowners to pay up – raising property taxes when most of us are feeling the pinch. There used to be nothing you can do about it – until now! There’s a a special Federal program that allows you to completely pay off your real estate taxes through exclusive rebates. And they are available to any American. In fact, you can collect a Real Estate Tax Rebate this month! And every 30 DAYS after that! Click here to find out how to enroll.