This industry continues to thrive…
The housing market continues to see an influx of new buyers.
Bidding wars, low inventory, and skyrocketing prices – potential buyers continue to flow into the home buying world at an unbelievable rate. And many buyers have their eyes on new construction, aiming for newly built model homes across the nation.
This has left builders feeling more optimistic about their business than they have in 20 years. And builder confidence in the newly built, single-family home market jumped six points to 78 in August on the National Association of Home Builders/ Wells Fargo Housing Market Index. This puts the index at the highest level in its 35-year history. And this is thanks to the surge in consumer demand in less urban areas. This demand, paired with low-interest rates, has pushed buyer traffic to all-time highs.
But despite these impressive numbers, there’s trouble on the horizon. And it could derail that market momentum that builders have been celebrating.
Where’s the money?
The possible trouble maker? The rising cost of lumber.
The cost of lumber has been skyrocketing, and there’s a few reasons why. The first and most obvious reason would be demand. As we discussed earlier, buyers are flooding into the market, looking for more space and eyeing model homes. These new homes require material to be built, hence where the demand for lumber is coming from.
Secondly, mills across the nation shut down in April and May, and they most certainly did not expect to see the level of demand they’re currently seeing. So, the stock is running behind. On top of this, there have been issues with transportation and labor because of the pandemic – meaning that they’re not only having a hard time keeping up production wise but also getting it to the consumer.
And a shortage in lumber means a shortage in production, leading to an even bigger shortage of houses on the market for this overly eager buying market.
But this shortage isn’t necessarily a bad thing for home builders. In fact, many believe it will give the industry an even more significant boost than it’s already seen. But here’s why I’m not buying into that hype…
How can I get some?
I’m sure it comes to no surprise when I say this, but we’re seeing a massive shift in spending as consumers move away from restaurants, bars, and entertainment and focus on where they’re spending most of their time – at home.
From redecorating to renovating to buying a new home altogether – we’ve seen an influx of cash flow for this industry over the last few months. But if I’m honest, I don’t think that this demand is here to stay. And that’s why I won’t be looking to buy any home builders such as KBH and LEN. Because I believe this could be a short-term top in these names – especially if we get a vaccine soon.
But no worries, because I have my eye on another opportunity. You see, we’re seeing a decline in homes being put on the market. And there could be several reasons for that, but analysts believe that many consumers just aren’t interested in joining the competitive market. And instead of trying to purchase a new home, they are looking to renovate the homes they already own.
That’s why I have my eye on “home supply” stores – specifically Home Depot (HD) for a short term play on this booming market. Now, HD reports earnings in just a few hours at 9 AM. So, I’m giving you the green light to look into call options on this stock for a quick cash-in on this booming market.
As You Can See…
Even though many industries are still feeling lingering effects of lockdowns and forced closings, there are still reasons to feel optimistic about several opportunities.
Regardless of what the rest of the year brings, my Project 303 readers and I will continue to use the recommendations of my S.C.A.N. trading system…
Even in 2020’s volatile markets, it’s still been able to deliver plenty of double-and triple-digit winners.
And like I mentioned above, there are plenty more in our crosshairs.
Click here now to get on board before we take our next profits.
In the spotlight: Back-to-school shopping
It’s the time of the year again – back-to-school clothes shopping should be in full swing. But like many traditions, COVID is canceling it for most states. And this is terrible news for retailers.
Many major names in the retail world, including American Eagle, Gap, Abercrombie & Fitch, and Children’s place, rely heavily on back-to-school shopping cash flow and sales to keep the boat afloat. But it looks now as if that influx of sales they’ve become accustomed too won’t be happening this year as many schools across the nation remain closed indefinitely.
And this loss of back-to-school sales is just another factor added to the long list of reasons why the retail sector continues to struggle to survive.
Analysts expect large merchants like Target, Walmart, and Amazon to absorb larger portions of retail apparel sales this fall as consumers are looking to limit their trips due to safety concerns. These one-stop shops (or online markets) are the perfect place for consumers to get what they need and get out without having to travel to several stores.
That’s why I’ll be keeping a close eye on mass merchant stores for a possible opportunity to profit off this shift in cash. And I’ll be sure to keep you updated.