Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Dynamic Maximizers®
  • Retirement Compounders®
  • Free Email Signup
  • Dick Young’s Safe America

Housing Recovery: Your Best Investment Today or Already Overplayed?

October 18, 2012 By Jeremy Jones, CFA

Yesterday the Census Bureau released the September report on the number of Housing Starts and Building Permits. Both increased much more than expected—permits surged by 11.6%, and starts were up by 15%.

After trudging along a Derpressionary bottom for more than three years, it is now safe to say that housing activity is finally picking up (prices may be a different story). But don’t get too excited. Despite the most accommodative monetary policy in the history of the republic, the 15% surge in starts only moves us from Depressionary levels to recessionary levels. Housing will of course eventually recover, population growth assures us of that, but there are still many headwinds.

Unfortunately that message hasn’t gotten through to some in the investing public. The folk loading up on homebuilding stocks think real estate is headed straight back to the bubble days of yore. The S&P 500 homebuilding index has more than doubled YTD. The current price-to-book value ratio of the S&P 500 homebuilders index is well above 2.25. That’s a lofty valuation for an industry with such lousy economics. Homebuilders don’t offer a competitive advantage. There are no significant barriers to entry in the business. All you need is capital and a construction crew and you too can start a homebuilding business.

What is most confounding about bubble-era valuations in homebuilder stocks is that, the vast majority of their assets are just property. Why buy property in the stock market at twice its cost in the real estate market? Sounds like a hard way to make money.

And historically it has been. On the last two occasions homebuilders’ valuations reached such stratospheric levels, the S&P 500 homebuilding index crashed hard in subsequent years.  I’m not trying to make a forecast here. Homebuilder stocks may still have some room to run in the short-term, but given the bubble-era valuations, this is an industry best left to traders and speculators.

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • Your Retirement Life: Investment Planning in One Chart
  • FOMO a Dangerous Investment Strategy
  • Your First Step Toward Investment Success
  • Author
  • Recent Posts
Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #10 in CNBC's 2019 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
Latest posts by Jeremy Jones, CFA (see all)
  • Turkey Bans Bitcoin - April 16, 2021
  • How Amazon Violates Anti-Trust Rules - April 15, 2021
  • Long Live the Dividend King - April 14, 2021

Search Young Research

Most Popular

  • It’s as Simple as 4%? No, Not Anymore
  • Is Inflation Imminent? Prepare Now
  • Your Port Against a Storm.
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • Long Live the Dividend King
  • Inflation? Yes.
  • Fidelity Investments #1: Hires 4,000 Focuses on YOU
  • Banks Prepare for Boom
  • The Highest Yielding Dow Stocks
  • The Power of a Compound Interest Table

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Could this Be the Vanguard GNMA Winning Edge?

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

RSS The Latest at Richardcyoung.com

  • The Vanguard Wellesley Way
  • Toilet Paper and SPAM: What More You Can Do?
  • Incentivizing People to Stay Home?
  • The Government Cannot Constitutionally Interfere With Gun Ownership
  • French Wine Weather Disaster Worse than 1991, 1997, 2003
  • Key West Breaking News from Dick Young
  • A Pitiful, Helpless Giant?
  • What Happens When Even Logic and Facts Can’t Persuade the Left?
  • Don’t Miss the Boat: Meet Your Money Stewards
  • Hit Piece on Gov. Ron DeSantis Is the End of 60 Minutes’ Credibility

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2021 | Terms & Conditions

loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.