Homebuilders Index off 68%
Sep/14/07 04:02 PM Filed in: 7 Education
and Research
While retail investors are selling out of their
REIT's and watching the value of their homes decline,
the smart money on Wall Street is gearing up to buy
everything on sale. The S&P Homebuilders index
(ETF: XHB) peaked in July of 2005 and has fallen 68%
since then. The real estate bust has sent individual
investors running for the hills, while veteran
investors like Warren Buffet, Bill Miller and The
Carlyle Group have rolled up their sleeves and
started buying into the weakness.
They have proven to be a bit early, but listen to what Bill Miller had to say in his recent letter to investors: "The headlines today are all about this being the worst housing market since the early 1990’s. Had you bought housing stocks during that previous period of duress, you would have made many times your money and handily outperformed the market over the subsequent decade."
While Buffet and Miller have focused on the homebuilders, other institutions are not shying from buying hard assets. Carlyle just finished raising $3 billion for a private equity fund and it plans to put it to work in a relative value strategy. The leverage will be low, they will only borrow $4 billion, giving them a total of $7 billion to invest. One thing's for sure, a weak dollar is making U.S. assets like real estate look more attractive to foreign investors and over the next few years their appetite for these discounted assets may be the stabilizing factor for the sector.
In 2005 the homebuilders index signaled the eventual real estate slow down. It acted as a leading indicator falling before other housing related stocks and as a result it is likely to be the first real estate sector to turn around. While the average individual investor is thinking, "real estate is just getting worse!" and the average institutional investor is saying, "I can't buy them because I need to make next month's numbers," investors with a longer time horizon, like Warren Buffet and Bill Miller, are likely to be well rewarded. Most people are calling for the real estate slowdown to continue into 2009 and 2010. If that prediction is true, it's likely that housing related stocks, and XHB, will bottom well before that time.
They have proven to be a bit early, but listen to what Bill Miller had to say in his recent letter to investors: "The headlines today are all about this being the worst housing market since the early 1990’s. Had you bought housing stocks during that previous period of duress, you would have made many times your money and handily outperformed the market over the subsequent decade."
While Buffet and Miller have focused on the homebuilders, other institutions are not shying from buying hard assets. Carlyle just finished raising $3 billion for a private equity fund and it plans to put it to work in a relative value strategy. The leverage will be low, they will only borrow $4 billion, giving them a total of $7 billion to invest. One thing's for sure, a weak dollar is making U.S. assets like real estate look more attractive to foreign investors and over the next few years their appetite for these discounted assets may be the stabilizing factor for the sector.
In 2005 the homebuilders index signaled the eventual real estate slow down. It acted as a leading indicator falling before other housing related stocks and as a result it is likely to be the first real estate sector to turn around. While the average individual investor is thinking, "real estate is just getting worse!" and the average institutional investor is saying, "I can't buy them because I need to make next month's numbers," investors with a longer time horizon, like Warren Buffet and Bill Miller, are likely to be well rewarded. Most people are calling for the real estate slowdown to continue into 2009 and 2010. If that prediction is true, it's likely that housing related stocks, and XHB, will bottom well before that time.