Remodeling Homes Holds Potential for Investors
by Hans Wagner, TradingOnlineMarkets.com | January 29, 2010
PrintThe home improvement and remodeling industry will be the darling of the housing sector in 2010. The plunge by the housing sector took the home improvement industry with it as it fell more than 30 percent from its peak in 2007. It looks like the home improvement industry will bottom in the first quarter of 2010 and then rise from there.
As homeowners recover from the devastation of the credit crunch, they are looking to increase their spending on their existing homes. Should existing home sales rise, it will add to the spending by homeowners on up grading their homes. Even the growing number of foreclosures will contribute to the home improvement and remodeling industry as the new owners spend some money to increase the value of their new purchases.
Harvard University’s Joint Center for Housing Studies expects homeowners to spend $104 billion at an annualized rate in the first quarter of 2010. From that low point in the current cycle, they are looking for spending to rise to $110.9 billion by the third quarter of 2010. Moreover, the Center expects year over year growth by the end of 2010 and into 2011.
Drivers for Increased Spending
Many homeowners are planning catch-up as they begin improvement projects they postponed earlier. Projects will cover the scope from painting a room to a total remodel of the kitchen. In each case, more money will be spent to upgrade the value of one’s home.
The growing number of foreclosures is contributing the higher spending on home improvements. Many foreclosed homes are in disrepair and require substantial improvements to make them livable. The new owners will be spending substantial sums to bring the homes up to code and to improve the value of the property.
Should the Cap and Trade bill be passed as it now stands, there will be requirements for homes to reduce their carbon foot print with better insulation and appliances that consumer less energy. Upgrades to heating and cooling systems will also be part of the new rules.
As the economy struggles to generate enough jobs, the President and the Congress may create another jobs stimulus bill. This new bill is likely to have money for home improvement such as insulation, window coverings new windows, low energy use appliances, etc. to create jobs and reduce the carbon footprint of a home.
Finally, should the sale of existing homes rise, the new owners will spend more on improvement projects. Many new homeowners complete some improvement project within the first six months of their occupying the home.
Investing Opportunities
This spending will drive up the sales of suppliers and manufacturers of home improvement products. Investors should look to the home improvement retailers and manufacturers of housing materials from paint to appliances and tools.
Two ETFs cover the home building and remodeling industry. The iShares Dow Jones U.S. Home Construction Index Fund (ITB) concentrates on homebuilders. Is does not include the retailers that service the remodeling and home improvement segment nor the manufactures of home products. The SPDR S&P Homebuilders (XHB) includes homebuilders, manufacturers and the retailers. They should benefit from the revival of the home remodeling and improvement segment.
Copyright © 2010 Hans Wagner
Editorial Archive
If you wish to learn more on evaluating the market cycles, I suggest you read:
Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles by Joe Ellis is an excellent book on how to predict macro moves of the market.
Unexpected Returns: Understanding Secular Stock Market Cycles by Ed Easterling. One of the best, easy-to-read, study of stock market cycles of which I know.
The Disciplined Trader: Developing Winning Attitudes by Mark Douglas. Controlling ones attitudes and emotions are crucial if you are to be a successful trader.
Bio As a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market. Feel free to visit the site at http://www.tradingonlinemarkets.com/�
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