US Housing Market Still Has Several Years of Double Digit Earnings Growth 1

Housing: an absolutely essential industry

Housing is another sector that looks attractive to Bill Miller, who manages about $3 billion worth of assets at LMM Investments. US exchange-traded funds such as the Vanguard REIT ETF (VNQ), the iShares U.S. Real Estate ETF (IYR), and the Real Estate Select Sector SPDR Fund (XLRE) track real estate stocks in the US.

According to Miller, in its cycle, the housing industry still has several years of double-digit earnings growth at single digit multiples. “It’s an absolutely essential industry,” says Miller. In the US, he sees the Millennials, and first-time buyers purchasing houses. The only hiccup for those who are still skeptical of home purchases is pricing. Home prices are rising by 4-5% so affordability is becoming an issue.

The supply-demand situation remains positive

The mortgage crisis of 2008-09, which led to the financial crisis severely impacting the US and other economies alike, had shaken investor and builder confidence in the housing market. Consequently, a supply slowdown led to a rise in prices. However, over time with confidence reviving in the property market, the supply is gearing up to match the demand.

The overall supply-demand situation remains positive. Since pricing is on firmer footing, we’re seeing a gradual price rise.

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Miller’s picks from the housing sector include LMR Real Property Management, Pulte Homes (PHM), Atlantic Property Management, Taylor Morrison Home Corp (TMHC), and TRI Pointe Homes.

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