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Four ways to ride the incredible housing recovery
From a sudden coronavirus collapse, the Aussie housing market is back. Headline figures are showing a surprising recovery that puts the housing market back in “bubble” territory. According to property research firm CoreLogic, Australian home values posted their fastest monthly growth in 32 years, increasing 2.8 per cent in March, reigniting bubble concerns. The coronavirus-recovery is the quickest on record, with prices up 8.2% since the September 2020 bottom.
Turnover is accelerating for the first time in many years. Investment bank UBS says, “By city, Sydney is now strongest (3.5% month-on-month, 5.3% year-on-year); but regional areas also lifted further (2.4% month-on-month, 11.4% year-on-year). Houses remain stronger (2.9% monthly, 7.3% yearly), but units are also now picking up (1.8% monthly, 2.2% yearly). Supply is very low, with new listings in March 25.5% below the five-year average – but demand is strong, seeing sales jump about 43% year-on-year – which is obviously pushing up prices. Unless regulators tighten, home prices could spike further, to about 15% year-on-year.
We spoke with the CEO of Seneca Financial Solutions, Luke Laretive, who gave us his insight into the current property situation. He sees building materials (from both a new construction and renovation perspective), property development and home-based consumer spending to form a significant driver of alpha for investors.
The work at home/city mix is likely to continue, boosting home improvement spending, renovations, furniture and increasing requirement for square meterage etc. “Couple this with the unprecedented availability of capital (which is 70%-90% of a property buyer’s purchasing power), you have a confluence of a structural shift in preference and a cyclical trend in interest rates,” he says.
Laretive has listed four stocks that stand to benefit from the next housing boom. “Gyprock-manufacturer CSR Ltd (ASX: CSR) has the highest leverage to single-family dwelling construction of any ASX listed company (51% of revenue). It has a consensus price target of $5.60 though many analysts in the market are not forecasting >200k building approvals numbers, which we see as more probable than many think, given the property market conditions currently.”
His second pick, with less domestic leverage, but potentially more price upside is Boral (ASX: BLD) “whose Australian business is a beneficiary of continued government infrastructure spending and an accelerating property market in the US. Boral is currently going through a significant organisational restructure and recently divested a division, and likely to continue to return capital to shareholders.” Another more direct beneficiary is pure-play property developer Cedar Woods Properties (ASX: CWP). Laretive sees an earnings recovery story underway, and CWP should benefit from exposure across land development, apartment, townhouse and commercial property products.
His final pick is Realestate.com (ASX: REA). Last Friday Mortgage Choice (ASX: MOC) and REA entered into a scheme implementation agreement, whereby REA will purchase all shares in MOC. Joining forces is smart business.
REA has a strong brand and firm grasp of the real estate advertising market. The acquisition provides REA with a unique client base of high-intent property seekers. It will also gives REA a mortgage broking business that can leverage REA’s digital strength. On all counts, the deal is a good deal, and comes at an opportune time, with the RBA maintaining the official interest rate at a record low of 0.10 per cent right at the cusp of another property boom. REA couldn’t have positioned itself better.
