• Energy and Income Advisor
  • Conrads Utility Investor
  • Capitalist Times
  • Twitter
  • Seeking Alpha

Growth Stocks

Consumer Discretionary is Advised

By Elliott H. Gue, on Aug. 12, 2013

At the height of the credit bubble, lax underwriting standards artificially inflated housing demand. Not only were mortgages available to borrowers with insufficient income and assets to qualify for traditional home loans, but lenders also introduced so-called affordability products that included variable payment options to help maintain origination volumes. When home prices collapsed, banks tightened their lending standards considerably, limiting the pool of potential homebuyers.

But trends in US household formation–people seeking to rent or purchase a home–suggest that there’s significant pent-up demand for home sales. In the past, about 1 million households formed annually. Add in the roughly 300,000 homes that are torn down or destroyed each year, and the US needs between 1.3 and 1.4 million new housing units to balance supply and demand for homebuyers and renters.

Source: Bloomberg

But the number of new households formed since 2006 has averaged 679,000 per year; economic uncertainty has prompted many would-be buyers or renters to continue living with parents or one or more roommates.

We expect consumers who opted not to rent or buy a home over the past few years to reconsider, thanks to low home prices, an improving job market, low interest rates and easing credit standards. Meanwhile, a tightening supply of rental properties in many major US markets has led to an increase in rents, making homeownership an attractive option.

The recovery in the US housing market has also helped to fuel a resurgence in home remodeling. In recent years, plummeting home prices not only gave owners little incentive to renovate and boost the value of their investment, but the erosion in home equity also made it difficult to finance large-scale home improvement projects.

Ready to discover your investing potential?
Try Capitalist Times Premium Risk-Free Today