Housing, Sweet Housing

05/29/2013 7:00 am EST


Jim Powell

Principal Analyst, Global Changes & Opportunities

Low interest rates and an improving economy make this sector very attractive, writes Jim Powell of Global Changes & Opportunities Report.

The government's biggest stimulus target is now the housing industry. More than any other industry in which we can invest, housing has a mandate to be successful. Without a housing rebound, the economy has little chance of becoming self-supporting again.

Besides the long-term capital gains we can expect, housing also offers a good way to convert paper and electronic "wealth" into real, tangible wealth. In addition, real estate is usually a great inflation hedge.

If you put all the attractions of the housing sector together, you get what I believe is a compelling case for making an investment.

A housing recovery is already underway, but it's still in its early stages. I think prices will start to move much higher this summer. The big question is, how much higher are prices likely to go from this point?

If you look at the cost of buying a home (including mortgage payments, taxes, and insurance) as a percentage of personal income, housing is more affordable today than it has been in decades.

Today's low mortgage rates reduce the total cost of a home by many thousands of dollars—often hundreds of thousands of dollars. That means buyers can pay more for houses than they could when rates were higher—and that's just what they are doing.

We already have two strong positions in the recovering housing industry, Toll Brothers (TOL) and Equity Residential (EQR).

For broader exposure to the sector, we suggest Weyerhaeuser (WY). New construction is consuming large amounts of lumber and other building materials. One of the biggest suppliers is Weyerhaeuser.

Weyerhaeuser is also a diversified housing company that builds homes and develops residential lots for construction and sale. In addition, the company builds multi-use developments and master-planned communities.

Another division of Weyerhaeuser produces a wide range of paper products for various industries. I think the stock will be a good performer in long-term accounts.

If you would like to combine current income with the probability of attractive capital gains, I recommend Senior Housing Properties Trust (SNH). This successful REIT invests in retirement housing, assisted living facilities, nursing homes, and hospitals. The company has a total of 184 properties located in 41 states.

Because SNH is organized as a REIT, it doesn't need to pay income tax if it distributes at least 90% of its earnings to shareholders—which it does. Currently the yield is an attractive 5.6%.

With America's baby boomers now entering their golden years, I think Senior Housing has a bright future.

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