Tags: housing market | homes | real estate | investors

Stash Away Cash Now to Sink Into Home-Building Stocks Later

Stash Away Cash Now to Sink Into Home-Building Stocks Later

By    |   Friday, 25 September 2015 11:17 AM

Prices in any market are determined by supply and demand. Based on a tight supply of new houses, home prices are likely to continue moving higher.

On Thursday, the Commerce Department reported new-home sales increased by 5.7 percent in August to a seasonally adjusted annual rate of 552,000.  This is well below the housing-bubble peak of 1.4 million homes but is about 60 percent above the crash lows.

Home builders seem to be avoiding the problem of oversupply they created in the last bubble. The inventory of new homes rose slightly in August, increasing by just 1,000 to 216,000 homes.

Economists at Wells Fargo noted the gain came from homes not yet started. Completed inventories, or homes ready for immediate occupancy, are near an all-time low of 48,000 homes or about one month’s supply at the current sales pace.

With the supply of homes ready for closing at all-time lows, there is little pressure to cut prices.

Until supply increases, home prices should continue to increase.

Housing may be among the few bright spots in the current economy.

Despite the promising outlook for the industry, as a group home-building stocks appear to be overvalued. The industry’s PEG ratio is 1.4. PEG ratios compare the price-to-earnings (P/E) ratio to the expected growth rate of earnings per share. A value of 1 is considered fairly valued.

This indicates the scale of the problem confronting stock-market investors. Growth is priced into promising sectors and almost the entire market is overvalued.

Rather than buying stocks, now is an ideal time to accumulate cash for the next buying opportunity, which is most likely several months away.

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MichaelCarr
Prices in any market are determined by supply and demand. Based on a tight supply of new houses, home prices are likely to continue moving higher.
housing market, homes, real estate, investors
271
2015-17-25
Friday, 25 September 2015 11:17 AM
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