It's hard to imagine how a twelve percent annual increase in home prices could be seen as a disappointment, but then again, the law of large numbers predicts the inevitability of slowing growth.
But while some investors are fretting over the latest Case-Shiller data, which shows the pace of home price increases slowed in June, Mark Kiesel, who heads up the global corporate bond portfolio group at PIMCO says the time has come to play the next leg of the real estate comeback story - the remodeling boom.
"Housing starts tend to lead the remodeling sector by about 18 months," Kiesel says in the attached video, "and the housing sector basically bottomed about 18 months ago."
When you add in growing home-owner equity and rising overall net worth, he says consumers are going to be more inclined to buy a new appliance or finish up their house.
"The inventory is very old right now," he says, and there's also "significant pent-up demand to remodel." As such, he says it's time to buy the bonds, not the stocks, of the companies that are poised to profit when the remodeling boom kicks into high gear.
"We've been invested in companies like Whirlpool (WHR), and Masco (MAS), and USG (USG), and Weyerhauser (WY). These are companies that we think their top lines can grow much faster than the overall economy, and it's simply a function of the fact that housing has been very depressed."
The remodeling boom is already starting to show results in the equity market, Kiesel says, with the rate-sensitive home buyers down about 27% in 3 months, while ETFs like the (XHB) have just bounced off a 4-month low as DIY stalwarts Home Depot and Lowe's are posting sale growth of 9-10%.
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