The current housing market in the United States is undergoing dramatic changes, and there are very few ways for the average American to capitalize on it. Today's trade is one of them.
Most of you probably know that real estate prices have been on the rise for the past few years. Just take a look at the below chart of the S&P Case-Shiller 30 City Index, which recently made a new all-time high.
And yes, you are seeing that correctly... real estate prices have now exceeded their previous 2006 highs... the height of the housing boom.
Unfortunately, the average American isn't celebrating this achievement, as wage increases haven't kept up with these costs. For many, the American Dream of owning your house has become exactly that -- a dream.
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In fact, only the wealthiest of the wealthy are seeing their household income increase on the same trajectory as real estate -- perhaps because they own most of it.
I've been involved in real estate for nearly as long as I've been a trader -- sometimes as a realtor, other times as a developer or even just an advisor in the industry -- so topics like price appreciation, high rent rates and the sustainability of each are near and dear to my heart.
High Home Prices (And High Rents) Are Here To Stay...
There are some professionals and many would-be homebuyers who strongly believe that the current lack of affordability for the average American will cause home prices to crater, but they couldn't be more wrong.
I know because I believed the same thing a year ago... Ironically, I believe it's those very doubts that will drive today's trade.
But back to my point. There are two things this group doesn't seem to understand:
1. Homebuilders are extremely cautious not to flood the market with inventory. Even though real estate prices are at new highs, inventory is still at multi-decade lows.
2. The average American isn't the only one buying homes anymore. Professional investors now own a serious chunk of single-family homes. Foreigners, investors, hedge funds and trusts are the new owners of brick and mortar, and many buy for cash.
In my hometown of Dallas alone, nearly 40% of transactions in 2016 were by investors, and we're seeing the same trend across the country.
These wealthy, mostly unleveraged investors have an advantage most homeowners don't -- patience. Because their objective is to make a profit, they're willing to wait for the right buyer or renter. They're also less likely to "panic" sell if the economy slows. When you think about it, these factors spell major stability for the housing market, not a breaking point.
I believe this shift in housing economics will not only hold home prices high, but also drive many to continue renting... especially up-and-coming millennials, a group that prefers the freedom of renting (versus having a mortgage) and haven't yet banked enough money for a down payment.
Just over 60% of American households own their homes, which means traditional homeownership is at a 30-year low. Some experts believe that homeownership will continue to decline through 2025!
Real estate prices are rising in spite of decline buyers...
This trend has to be one of the greatest anomalies in history!
Demand from homebuyers has declined to 30-year lows, yet home prices are at all-time highs. From here, only two things can happen: Either buyers will come out in droves -- driving home prices even higher, pushing home ownership further out of reach for many others -- or they will continue to rent. Either way, this void will have to be filled by rentals.
That's a win-win for today's target, which specializes in apartment homes.
As home ownership becomes more and more unattainable for younger buyers, they will increasingly be forced to rent. This might seem like a negative, but it actually fits the progressively mobile social fabric of our nation. Millennials, now the majority of working Americans, like to keep their flexibility. And they're the ones driving the rent race!
Even more supportive for rentals is that U.S. household income just started to rise again in 2015, after seven years of decline. Those wage increases will help support rents, but they aren't large enough to trigger a sudden jump in home ownership.
The fact is, most middle-and upper middle-class Americans aren't going to give up and just be homeless simply because they can't afford to buy a house; they will have to bear what the market is offering.
That's where properties like those owned by today's target stock, Mid-America Apartment Communities (NYSE: MAA), stand to benefit.
MAA: Prime Location And Prime Trading Setup
Mid-America is a real estate investment trust (REIT) that owns nearly 108,000 apartment homes across America, with large concentrations in Georgia, Texas and Florida and North Carolina.
The company trades at a reasonable 17 times forward earnings, but what I like most about the stock is the fact that investors have very low expectations. The company grew revenues just 2.8% in the latest quarter but was rewarded with a subsequent rally that sent shares from $96 to a high of nearly $111.
Currently, Mid-America is seeing rent rates rise 5% to 6% in some areas and boasts a strong 96.1% occupancy rate. The stock currently yields 3.4%.
I recently shared more details about the company with my Profit Amplifier readers in my latest issue. The stock may be suitable for a long-term buyers, but thanks to our proven options strategy, we don't have to wait long to profit. Based on the specific trade my readers and I recently made, we stand to make a 32.5% gain from just a 5.2% move in the stock price. And so far, we're already in the green on this trade.