A classic home with a small yard and a white picket fence…
It’s been the American dream for generations.
Sure, there are plenty of variations.
Some people want to live close to water. Others enjoy a desert view. And styles like “colonial,” “brick ranch” and “Charleston row” attract different buyers.
But here in America, the dream of being a homeowner has always been part of our culture.
And this year, that dream is becoming a reality for many families.
Demand for homes is just one factor pushing home prices steadily higher this year.
Even if you’re not a homeowner or in the market to buy a house right now, you can still profit from this sweeping trend.
Today, I’ll show you three of the many ways you can grow your retirement thanks to a vibrant housing market!
The Many Forces Behind Real Estate
When it comes to residential real estate, there are three main forces pushing home prices higher:
Low Mortgage Rates — The Fed has been actively buying mortgage securities, pushing mortgage rates to their lowest levels ever (see the chart below). This makes payments more affordable for buyers, even while prices for homes rise.
Millennial Household Formation — After a bit of a delayed start, millennials are making up for lost time. As this segment of young adults begins to buy homes in earnest, millennial demand is another large force driving home prices higher.
Coronavirus Exodus — The appeal of living in a vibrant city is quickly fading. Thanks to coronavirus, people are moving out of the city to reduce their risk of infection. And with the work from home trend here to stay, this trend will last long after a vaccine is developed.
These three factors are all converging in the summer of 2020 to drive a tremendous amount of activity.
In fact, this week the U.S. Census Bureau reported that new home sales were up 36% from where they were last year at this time.
With so much opportunity in the housing market right now, let’s take a look at some of the best ways for you to profit!
Housing Boom Opportunity #1: Invitation Homes Inc. (INVH)
During the last financial crisis, private equity firm The Blackstone Group made a brilliant play. The company bought tens of thousands of homes that had been foreclosed on and were held by banks.
The banks were desperate to get rid of the homes at just about any price. So Blackstone bought the homes for pennies on the dollar. From there, the company renovated the homes and rented them out.
Eventually, Blackstone turned this rental business into its own unit and sold shares of the company to the public market. Today, that housing company is Invitation Homes. And the stock is a great investment to help you generate retirement income.
Since INVH is structured as a real estate investment trust (or REIT), it’s required to pay the majority of its rental income to you as a shareholder.
And as values of homes across America continue to climb, the value of INVH’s portfolio should increase — naturally driving the stock price higher.
Housing Boom Opportunity #2: Lennar Corp. (LEN)
Homebuilder stocks have been some of the best-kept secrets during this market rally.
While the media has been laser-focused on the big tech stocks, shares of the companies who build homes across America have been soaring.
Lennar is one of my favorite names in this area. The company caters specifically to new home buyers, which is the strongest area of the housing market right now.
By selling smaller and more economical homes to first time purchasers, Lennar can split up its land into more units and lock in some great profits from the communities it builds.
Right now, the stock only pays investors a $0.50 annual dividend. This equates to just a 0.65% yield.
But with the company earning more than $6.00 per share annually, we can expect that dividend to increase by a large amount over time.
Housing Boom Opportunity #3: Home Depot Inc. (HD)
As a homeowner, I can tell you from personal experience that it’s difficult to determine whether you spend more buying a house or taking care of it along the way.
Homeowners wind up spending money on everything from appliances to light bulbs, to HVAC filters, to lawn care equipment and much more!
All of this spending naturally leads to trips to Home Depot. And the company has done quite well this year.
Home Depot has also benefited from a surge of remodeling projects. As people are stuck at home to avoid the risk of coronavirus, many have been finishing basements, remodeling kitchens, or setting up a new home office.
All of these projects have increased demand for the hardware and other materials sold by HD.
And don’t forget, a large portion of HD’s revenue comes from contractors, who are building or professionally remodeling homes.
So HD is benefiting both from new home builds as well as existing home repairs.
All three of these plays are great ways to capitalize on the ongoing strength in the housing market.
And since this trend still has plenty of room to run, it’s not too late to get started!