The housing recovery has quickly identified cities that are head and shoulders above the rest. Find out which housing stocks are riding this rebound to all-time high…
As football season heads into week 3, already my weekly fantasy picks are struggling to reach .500.
Truth be told, I’ve neglected keeping up with the latest news and injury reports when it comes to picking my teams… and it clearly shows.
But while I’ve found it especially difficult to predict results on the gridiron this season, I’ve had great success predicting opportunities that could make investors money in the business world this year.
And one area that’s really caught my eye over the last few months is none other than U.S. real estate.
Almost everywhere you look, the housing recovery is heating up.
Cities like Las Vegas and Phoenix have seen their house prices and sales boom after a spectacular bust just a few years ago.
Even downtrodden Detroit has shown signs of life as buying activity recently picked up in the Motor City. You could throw in Tucson, Boulder, Pittsburgh, you name it – the recovery is starting to take hold and prices are beginning to rise.
But which cities are truly leading the trend?
Real estate research firm RealtyTrac recently released its first-ever Housing Market Recovery Index (Housing MRI) which identified how key cities stack up against one another as the housing recovery rolls on.
The index is calculated based on seven factors related to the health of the real estate market, including:
- unemployment rate
- underwater loans percentage
- foreclosure activity percent change from peak
- distressed sales percent of total sales
- institutional investors share of total sales
- cash purchases share of total sales, and
- median home price percent change from bottom
At the very top of the list is Rochester NY, which demonstrated below-average numbers in unemployment, underwater and distressed sales percentages, as well as above-average decline in foreclosure activity and median home price.
Although it ranked second behind Rochester, Cape Coral-Fort Meyers FL was one of the hardest-hit markets that has made a remarkable comeback over the past few years.
Despite still boasting a high percentage of underwater homeowners and distressed sales, southwest Florida has proven to be a very attractive locale for investors who are able to pay cash for properties.
The third ranked was Albany NY, followed by San Jose CA and San Francisco to round up the top five.
According to RealtyTrac VP Daren Blomquist, much of the current recovery is precisely due to the influx of investor money.
“We’re seeing a market that is very dependent on investors right now,” Blomquist said.
He may be speaking in light of Warren Buffett’s comments last year when he told CNBC that he would love to buy up a “a couple hundred thousand” homes if it was practical. As the Housing MRI shows, many are in fact taking Buffett’s advice.
And investors who can afford to buy and hold properties will certainly be looking for ways to maximize their homes’ values when it’s time to sell.
One of the best ways to build equity in a home is through renovations.
So naturally, the best stocks to leverage the needs of real estate investors are stocks in the home improvement business.
Two of the Today’s Top Housing Stocks:
Any movement in the housing market directly impacts home improvement projects. As such, seeing that both Lowe’s (NYSE:LOW) and Home Depot (NYSE:HD) reported positive growth in their recent earnings report is a strong indication that the market is indeed in recovery mode.
For Q2 2013, Lowe’s saw a 10.3% jump in revenues from the same quarter last year while Home Depot saw a 9.5% increase.
What’s more, Lowe’s currently trades at a P/E ratio of 23.54, but its forward P/E is just 17.35. That’s because the company estimates earnings growth of 35% to reach earnings per share (EPS) of $2.64 in 2014.
Similarily, Home Depot has a trailing P/E of 21.95 with a forward P/E of 17, indicating an expected earnings growth of 29% and EPS of $4.36 in 2014.
Between the two, they have more than 3,900 retail locations across the US (1,712 for Lowe’s, 2,200 for Home Depot), giving them an expansive footprint to sell their supplies to homeowners.
Though rising mortgage rates may be taking some of the steam out from the recovery, I believe home sales will remain elevated for the foreseeable future — which will continue to bode well for these two home improvement giants.
And despite both Lowe’s and Home Depot’s share prices hitting record highs in 2013, I see the housing recovery is only just beginning — meaning there’s even more room to run.