(LEN) The Housing Market…This Huge Trend Is No “Sham”

Although home prices are rising at the fastest pace in seven years and sales of previously owned homes in April hit their highest level in more than three years, Heidi Moore isn’t buying it.

Who is Heidi Moore? That’s the perfect question to ask because the woman – who is the U.S. finance and economics editor at The Guardian - has completely misread the current conditions in the U.S. housing market.

In a recent column, she claimed that what looks like a housing recovery is, in fact, “a trap.”

Banks now own a big percentage of available homes for sale – through foreclosures – and she claims they are controlling the supply to artificially increase prices. Furthermore, she claims that buyers aren’t people looking for a home to live in but just cash investors who are fixing up homes to flip them for a profit.

Moore… or Less

Let’s start with her first claim that banks are manipulating the market to artificially increase prices.

If you’re going to make a claim like that, you ought to have a lot of evidence to back it up. She offers none. Foreclosure sales have declined for 17 straight months and the bankers I know say they are anxious to get their remaining ones off their balance sheets and converted into lendable cash.

RealtyTrac, a real estate website that tracks the industry, found that the number of foreclosures sold in the first quarter of the year declined 22%. Foreclosures are a much smaller part of overall home sales now. (Compared with April 2012, there were 24% fewer homes in some stage of foreclosure.)

Lower mortgage rates, a recovering economy, improving consumer confidence and rising home prices are the true factors leading this resurgent housing market.

And if banks – which threw lending standards out the window during the boom – would just loosen up their credit requirements a bit, things would heat up even more.

Flipping Out

How about her claim that a big part of the housing market is cash investors fixing up homes and flipping them? This is indeed happening. And let’s applaud it.

Former builders I know – who are cash-based home flippers themselves – tell me these foreclosed homes all have the same problems: dead lawns, green pools, soiled carpets and damaged walls and appliances.

These folks go in and replace the sod, clean the pool, paint the house, replace the carpet and put in new appliances. Then they flip it.

And to whom?

Not another investor but to a new homeowner who is delighted to have an opportunity to buy an attractive home at a good price.

In short, rising prices and near record-low mortgage rates are working their magic. The housing market is showing real strength again. So ignore Heidi Moore and her conspiracy theories and take advantage of changing conditions by picking up a few undervalued homebuilders.

A good starting point would be companies like Lennar (NYSE: LEN), D.R. Horton (NYSE: DHI), Toll Brothers (NYSE: TOL), KB Home (NYSE: KBH) or PulteGroup (NYSE: PHM). Or you might try an exchange-traded fund like the SPDR S&P Homebuilders ETF (NYSE: XHB).

All should do well… because the only sham I see is Heidi Moore’s shallow analysis.

Good investing,
Alex


View original at: Investment U

More on this topic (What's this?) Read more on U.S. Housing Market, Lennar at Wikinvest

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