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A lot of talking heads spend time pointing out the stark difference between unemployment, which is still running above 6%, the economy, which is running on fumes and which will probably get worse without stimulus, and the stock market, which as of yesterday morning is at an all-time high.
In theory, stocks should be in the basement, but that overlooks the catalysts that casual observers (or talking heads) might miss: Money is dirt cheap right now, and the stock market loves cheap money.
We've also seen millions of investors come in from the sidelines using new mobile trading and investing apps. Some of that new blood correctly sensed a massive opportunity with stocks so beaten down back in March. Others missed sports gambling and needed something to bet on.
It doesn't really matter why those new investors are here; what matters to stock prices is the hundreds of billions of dollars they brought with them.
The fact that now two coronavirus vaccines are in sight is just the icing on the cake.
With so much attention focused on stocks, and, well, vaccines, people have overlooked the fact that somehow, in all this, we've got a big housing boom on our hands!
On paper - for all the reasons I've mentioned - the housing boom makes even less sense than the blow-the-doors-off rally we've seen, but there's more going on here than meets the eye.
That's why I think this housing play could be one of your top profit generators in 2021...
Economists Agree: This Is One Weird Boom
Ever since the end of World War II, housing has been increasingly important to the United States' economy.
It's been practically carved into stone tablets for 70 years: "As far as the United States goes, when housing is booming, so is the economy; when it's a slump, so is the economy."
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Easy to see why it's so important. According to Uncle Sam, around 65% of U.S. housing is owner-occupied. Since the 1990s, housing has accounted for between 30% and 36% of Americans' net worth. Spending on housing - all kinds of spending - accounts for around 16% of the country's GDP. That tells you, however sexy the stock market is, most Americans keep their wealth in their houses.
And that doesn't even account for the millions of jobs housing creates, from decorators to bankers to construction workers.
So, with the current economy in such a dicey condition (basically one stimulus bill away from getting worse) you'd think housing would be in the dumps, too - but far from it.
Here's the funny thing: Economists can't really agree on why it's happening. It's been the "upside surprise" of this pandemic year. MRB Partners' Prajakta Bhide said it best: "It's very unusual in a recession and needs to be further examined."
The data Bhide shared seem to point to a boom that's being driven by affluent buyers who've held onto their jobs during the pandemic wave of unemployment. The numbers point to big growth in the mid- to high-end housing tier, not so much in the "entry level" market, which hasn't done as well.
The truth is this economy hasn't been universally "rough." Our Super Options subscribers, for instance, have had the chance to leverage the most explosive stocks and grow 546% richer. America's wealthiest have seen their net worth boosted by half a trillion dollars since March 2020.
In that light, the boom looks less "weird." It makes more sense and starts to look a lot more sustainable.
Another explanation, which seems to make as much sense as anything else, is that people are just plain attracted to cheap-as-free mortgages; rates are historically low right now.
It's tough to argue with the growth. Rocket Cos. Inc. (NYSE: RKT), the biggest mortgage lender in the country since it dethroned Wells Fargo Corp. (NYSE: WFC) back in 2017, has reported a third-quarter "mega spike" in profits - 506% - as it wrote a record $89 billion in mortgages.
So the outlook of America's biggest mortgage lender is telling us to look at America's biggest homebuilder right now...
Get Right at the High-End Housing Supply
In a boom like this, it makes good sense to get to the heart of it and look at the biggest beneficiary of the boom. And the following company fits the bill...
Analysts were all fired up to get a look at D.R. Horton Inc.'s (NYSE: DHI) fiscal year 2020 reports, upgrading their expectations along the way.
America's biggest homebuilder by volume did not disappoint. The company beat expectations in just about every way that matters. Just look at these FY 2020 numbers, and how they did over FY 2019...
- Revenue up 15%.
- Net sales up 39% on a per-order basis, and the total value of those sales rose 40% to $23 billion.
- Return on equity hit 22.1%.
The quarter-on-quarter numbers were even better, pointing to a boom that's getting stronger, not weaker, as time goes on.
- Net sales up 81%.
- Revenue up 27%.
- Pre-tax profit margins up 2% to 16.5%.
Big, knock-it-out-of-the-park numbers like this paint a picture of a company that's smack dab in the middle of a remarkable boom. Most analysts are actually expecting D.R. Horton to grow faster than the housing boom is for at least the year.
The bottom line is this boom, backed by trillions in wealth, is probably sustainable for at least the intermediate term. That makes D.R. Horton the housing-boom stock to buy here at market, and load up on any dips.
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Some of them have been able to retire because of it. Others have paid off their debt. Still others have bought their dream homes. Check out their stories here...
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About the Author
Andrew Keene is a globally known trader and a renowned expert on all things options.
