Sir John Templeton, perhaps the greatest contrarian investor of all time, once said:
“Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
These words couldn’t ring any truer today.
For example, I live in South Florida. In 2010, the housing market was completely in shambles due to the financial fallout from the subprime mortgage crisis and the Great Recession.
At that time, many homes were selling for less than half of what they were prior to the collapse and foreclosures were happening everywhere. In fact, pessimism probably isn’t a strong enough word for how people thought about the housing market back then.
However, contrary to popular belief, the market had started to show some signs it was getting ready to turn around (at least in South Florida).
On top of this, mortgage rates were near historic lows and the stocks were well above their March 2009 lows.
With John Templeton’s advice playing over in my head, my wife and I took a chance and put some money down on a house.
Since then, our home value has increased 25% from when we closed December 2010. I don’t expect its value to drop any time soon, either. The housing market continues to show signs of stabilizing:
- In October, the Commerce Department reported new home sales rose in September to the highest level in over two years.
- Housing construction jumped 15% in September, as well, the biggest increase we’ve seen in four years.
- Demand among home buyers is up 27.1% from just a year ago.
- Home prices have climbed 5% overall in the last year.
And the best part… there are still millions of skeptics out there. As John says, bull markets are “grown on skepticism…”
If you can buy a home today and property values are turning around where you live, my advice is you should. But don’t worry if you can’t or don’t live somewhere where home values are appreciating just yet.
Because some of the biggest gains from the housing recovery are happening right on the stock market.
A Banner Year for Housing
Companies in the housing industry in the U.S. have had a fantastic year. I first wrote about the opportunity in homebuilders back in August, and they continue to race higher even as I write.
For instance, since August, PulteGroup (NYSE: PHM), the largest homebuilder in the United States, is up 27%. Year-to-date the company has skyrocketed 160%. Other big name builders such as D.R. Horton (NYSE: DHI), Toll Brothers (NYSE: TOL) and Lennar (NYSE: LEN) are up 49%, 48%, and 83% this year as well.
But the housing recovery isn’t just a boon for companies that build new homes. Banks that lend mortgages such as Wells Fargo (NYSE: WFC) and U.S. Bancorp (NYSE: USB) are benefiting from the recovery. They’ve climbed around 15% since January.
Home project stores such as Lowe’s (NYSE: LOW) and Home Depot (NYSE: HD) are also winners during this housing recovery. Lowe’s is up 26% and Home Depot has popped 51% this year.
Of course, the housing market still has a way to go before everyone agrees that it is finally in full-on recovery mode. But that’s exactly why there’s still time for investors to profit. You can take advantage of their hesitation by getting in now.
Let’s face it. By the time everyone hops on the housing recovery bandwagon anyway, it will be too late. The real money will already have been made.
After all, bull markets “mature on optimism and die on euphoria.” In those terms, it’s hard to imagine we’re already fully matured at this point. And there’s certainly no euphoria yet.
View original at: Investment U
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