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Now Is a Good Time To Invest In Housing

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Invest In HousingAfter experiencing an uneven recovery in the wake of the deep recession of 2008 and 2009, now is a good time to invest in housing, since housing is showing signs of a sustained recovery. There are a few macro forces that should underpin housing prices and gradually force them higher over time.

First off, the inventory of housing that is in a distressed state; either pre-foreclosure, in foreclosure, or undergoing a short-sale, has been declining for years, and is finally reaching normal levels that support higher house prices. The downward pressure in housing prices that is caused by excessive distressed real estate is abating.

Secondly, millions of people who were foreclosed upon when the real estate market peaked between 2006 and 2008 have reached the seven year threshold in which past their foreclosure is removed from their credit report.   This is causing a slight, but significant uptick in homebuyers.

Third, the household formation rate is once again rising, which is critical for home sales, since people tend to buy homes once they have formed a household of their own. More than half of people living with relatives are now planning on buying their own place.

Finally, the job market has picked up significantly, and continues to improve. More jobs means more people can afford to buy homes.

Invest In Housing By Thinking Long-Term

New HomeThe severe drop in housing prices that occurred from 2006 to approximately 2012 has affected the psychology of home buyers, making some shy away from buying, due to fears that housing prices will fall.   The reality is that those six years were an aberration when viewed from a broader perspective. Normally, housing prices go up over time, as they had done for decades until the 2006 housing bubble crisis set in. It takes a huge economic recession, such as the Great Depression of the 1930s or the Great Recession of the late 2000s to cause housing prices to fall. Even then, housing prices eventually recover. In the grand scheme of things, another sustained drop in housing prices might not unlikely to occur for many decades, until another severe recession takes hold.

The key to successfully investing in housing is to think long-term. Whether you are thinking of buying a house as an investment or investing in the housing industry by buying stocks or funds associated with the industry, you have to think long-term over many decades to book solid returns. Due to all the costs associated with buying and selling a house, flipping houses quickly is not viable in many situations. Think long-term and make improvements to a home that increases its value. If you are taking the stock or fund investment route, consider reinvesting any dividends that are paid to maximize investment gains over time.

If you do not plan on staying in a home for at least five to ten years, then you may be better off renting instead. But, do not let that keep you from buying a house as an investment property. If you are able to buy an investment property in an area that has no problem finding tenants, you can either manage it yourself or hire a management firm to manage the property for you. Again, think long-term. The rental rate for the house can be raised over time, bringing in additional income, as your mortgage stays at a fixed thirty-year rate. In the long-term, you can build a nice retirement nest egg paid for by people who rent your property over the thirty-year period.

Invest In Housing | Buy Housing Stocks and Funds

HovnanianThere are a myriad of housing stocks and funds that can be utilized to invest in housing. While many of these stocks and funds are well into multi-year rallies, coming off the housing price bottom of recent years, there are still ways to invest in them.

If you are truly a long-term investor, find housing stocks and funds that have the best fundamentals and invest long-term. The market will go up and down, but over time, solid companies will produce solid returns.

Here are some ideas regarding how to invest in housing using stocks that are oriented towards the housing market.

  • Hovnanian Enterprises, Inc. (NYSE:   HOV) – designs, constructs and sells residential homes. It constructs a wide variety of homes, including: single-family stand-alone homes, attached townhomes and condominiums, homes on unutilized urban properties, and active adult homes. The company has over 200 developments in over thirty markets across the United States. It also has a financial services division that originates mortgages for homebuyers, sells mortgages in the secondary market, and provides title insurance services.
  • KB Home (NYSE: KBH) – constructs and sells various types of homes, from attached and detached single-family homes to townhomes and condominiums. The company also provides insurance products, including: property, casualty, earthquake, flood, and personal property insurance to people who buy the homes that they build. They also provide title and mortgage banking services.

The following are some exchange traded funds (ETFs) that can be purchased to invest in housing.   Investing via funds is a safer way to invest in housing, since a fund invests in multiple stocks and spreads the risk out among numerous companies.

  • SPDR S&P Homebuilders ETF (NYSE: XHB) tracks the performance of the S&P Homebuilders Select Index, which includes some of the largest home builders and building material suppliers in the United States.
  • PowerShares Dynamic Building & Construction Portfolio ETF (NYSE: PKB) is made up of companies in the Dynamic Building & Construction Intellidex Index.   The index includes companies that supply materials to the construction industry and home improvement companies.
  • iShares Dow Jones U.S. Home Construction ETF (NYSE:   ITB) invests in companies included in the Dow Jones U.S. Select Home Construction Index. The ETF includes a broad array of companies, from home builders to building materials manufacturers to home improvement firms.

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