Inflation, rising rates, and thin profit margins have squeezed residential homebuilders.

Yet new home sales surged in July, hitting a 17-month high.

They may get higher still.

And I am not the only one who’s taken notice.

This year, Warren Buffett invested $814 million in three different homebuilders.

A major shift is coming.

And here at Intelligent Income Daily, my team and I work hard to keep you informed and up to date on all the latest financial trends. That includes identifying income opportunities that others might overlook.

Today, I want to tell you about one such opportunity: a housing market play that might seem like it’s past its prime if you don’t know what I know…

The Big Squeeze
I was a real estate developer for over two decades… right up until the housing crisis hit and ended that career.

From booms to busts, I’ve lived ‘em – and learned from past mistakes.

And right now, existing inventory is exceptionally low, which means homes are still selling high prices.

And longer-term homeowners hold mortgage rates of 3%-4%.

While last week interest rates topped 7%, without any signs of cooling off anytime soon.

That means current owners have no incentive to sell in order to buy houses with higher interest rates.

And thus, the housing market squeeze.

In response, builders are ramping up construction. Despite the higher costs of building new homes, they know they’re working with very hot commodities.

Sales of newly constructed homes – not existing homes, mind you, but new ones – were up 4.4% to a seasonally adjusted annual rate of 714,000 in July.

That’s a 17-month high.

It’s also up from June’s 684,000 and 31.5% higher than a year ago.

And well-known homebuilders are talking about it.

Toll Brothers (TOL), named the #1 Home Builder in one Fortune magazine’s 2023 survey for the eighth year in a row, shared on its earnings call that demand in August has held up better than usual against a backdrop of low existing-home inventory.

And PulteGroup (PHM), the third-largest homebuilder in the U.S., is finding that buyers, who often pay cash for a home, now seem to be largely unaffected by this rising rate environment.

Last but not least, Warren Buffett’s biggest homebuilder investment, D.R. Horton, made headlines last month. D.R. Horton acquired Truland Homes, the largest homebuilder along the Gulf Coast, for $100 million in cash.

The money is moving, and the market has not yet caught up. Most of these companies are still heavily discounted.

So how can you profit from this housing squeeze?

An Easy Way to Profit from the Squeeze
One easy way to profit is to invest in Hoya Capital Housing ETF (HOMZ).

It’s an exchange-traded fund (ETF) that invests in companies operating across the housing industry, from real estate operations and home building to construction.

HOMZ also invests in companies engaged in home improvement and furnishings, housing finance, residential REITs, renting operations, and related technology and services. You literally get everything housing-related, including the kitchen sink.

HOMZ – which was only formed on March 19, 2019 – is considered a small-cap ETF, with just $37 million in assets under management, or AUM.

But its expense fee is reasonable at just 0.30 basis points.

Plus, it pays monthly dividends.

Now that’s an easy income-oriented way to profit from the housing squeeze shift.

Get in early before the rest of the market catches on.

Happy SWAN investing,

Brad Thomas
Editor, Intelligent Income Daily

Source: Wide Moat Research