The Stars are Aligning for one of the Year’s Hottest Industries
New home construction has cooled off in recent months, but it could just be the calm before the storm.
Over the course of the last year, we’ve seen the pandemic create a number of trends in the market.
As millions of new traders entered the market, we’ve seen huge movements in “meme stocks,” cryptocurrencies, stay-at-home stocks, recovery plays, and much more.
And while many of these market fads have had their ups and downs, one has remained red-hot.
The market for single family housing has reached a fever pitch this year. Due to the massive imbalance of demand vs. supply, buyers are being forced into bidding wars, making cash offers well above asking price – often sight unseen and without an inspection – for existing homes.
With such incredible demand for housing, homebuilding companies have been swamped with orders for new construction.
But after a report on new homebuilding permits disappointed in May, several of the market’s top homebuilding stocks have fallen from their highs.
Here’s why I believe this presents us with a great buying opportunity…
Where’s the money?
Perhaps the biggest reason we’ve seen a reduction in new home construction recently has been rising costs.
While low mortgage interest rates are allowing Americans to borrow more, it has also created a situation in which that money isn’t able to buy as much. The amount of building, coupled with pandemic-related labor issues, has created a shortage in building materials – particularly lumber – which has driven up prices. Those increased expenses are then passed on to the home buyer.
Homebuilders have also been delaying new constructions amid the rising costs, as well as a desire to avoid flooding the market with new homes.
But as building materials supply constraints start to alleviate – with more workers able to return to saw mills and other materials-related workplaces – we could see new construction pick up right where it left off earlier this year.
Here’s my recommendation for how to play it…
How do I get some?
The housing market has been on fire and there seems like there is no stopping it. Demand is still incredibly high while existing home inventories are up only slightly from the low in March.
With the Federal Reserve indicating that mortgage rates will once again be on the rise in coming years, I think we’ll see a lot of motivated home buyers looking to build in the near future and secure the still-low rates.
I think the best way to play this opportunity is KB Home (KBH) – a California-based homebuilder that operates in nearly three quarters of the U.S., including some of the hottest housing markets in the country.
As of yesterday, KBH was trading as low as 23% lower than the high achieved in May. Now might be the perfect opportunity to buy the dip before the lull in homebuilding is over.
Housing isn’t the only lucrative trend in the market
The trading revolution brought on by the rise of apps like Robinhood has created wave after wave of speculative surges.
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In the Spotlight: Tesla on the rebound
After shares of the world’s most recognizable electric vehicle company fell by nearly 40% from their high in January, Tesla, Inc. (TSLA) rallied more than 11.5% since Tuesday afternoon.
While Bitcoin’s rally this week surely played a part on the improved outlook for TSLA stock, the big move up was mostly the result of news involving infrastructure.
Reports surfaced this week that Tesla is considering opening up its network of charging ports to other automakers.
While the development is limited to Germany and Norway for the moment, it could be the first step in a broader expansion for Tesla’s infrastructure.
Widespread use of Tesla’s charging network would mean an additional source of revenue outside of auto sales and fluctuating cryptocurrency prices.
I’ll be keeping my ear to the ground for any more news on the subject, and I’ll be sure to keep you posted.