With foreclosures dropping and rates remaining ridiculously low, it doesn’t appear that this trend will slow down, especially if supply remains low. Supply may pick-up, however, if more homes are built. Supply may actually increase as prices go up as well, if “underwater” individuals sitting in their homes can break even or even make a profit. The supply of homes is at its tightest since the “bubble days” and prices are increasing:
Waiting for supply…
As supply remains tight, coupled with rising home values, home improvement stores will likely benefit the most from people staying in their homes and remodeling. The Home Depot, Inc. (NYSE:HD) is the largest home-improvement retailer in the nation, and recently reported its fourth quarter results, beating expectations- with net income also rising 32% year-over-year. The company also announced that it would be raising its dividend and buying back $17 billion worth of its own shares. The second largest home-improver, Lowe’s Companies, Inc. (NYSE:LOW) reported a decrease in net income– but like its competitor Home Depot, Inc. (NYSE:HD), also managed to beat analyst expectations.
Sherwin-Williams Company (NYSE:SHW) is another home-improvement company. The company manufactures, distributes, and sells paints and related products. Sherwin-Williams is the largest producer of house paint in the United States by revenue. One advantage Sherwin-Williams has over competitors is its popularity with professional painters. More homeowners are shifting away from do-it-yourself painting of their homes as professional painting becomes more affordable. Professional painters have significantly increased their presence in the residential painting market, and since Sherwin-Williams sells a good amount of its products to professionals, they should see beneficial results from a recovering housing market.
The bottom line
The housing market seems to be lacking supply, which is helping to increase home values. This is leading to good things for improvement companies like home depot and companies like Sherwin-Williams who provide home-improvement products. There is also increasing demand amongst prospective home buyers. D.R. Horton, Inc. (NYSE:DHI) will capitalize from this demand. This homebuilder is also more attractively valued than the aforementioned stocks, with a P/E of only around 8. Home Depot and Lowe’s are trading at around 22-23 times earnings, and Sherwin-Williams is trading at a P/E ratio of about 26.
As home values continue to rise and supply continues to tighten, demand will also increase– and this demand will inevitably need to be met. The home-improvement trend in turn may cool down and shift more towards the homebuilders who will continue to build to fill this increasing demand of home buyers who outnumber the amount of available homes for sale. D.R. Horton, Inc. (NYSE:DHI) is attractively valued now and can be bought as a housing market rebound play to follow this trend.
The article A Solid Bet For the Increase In Demand For Housing originally appeared on Fool.com and is written by Joseph Harry.
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