Sharp Rise In November Housing Starts
Investors and Colleagues,
Things are looking up for the residential real estate market!
This week, the National Association of Homebuilders announced that housing starts jumped 9.3% in November. This is the best reading in over 18 months – and a solid piece of evidence that the entire industry is in a bullish transition.
For the month of November, the annual rate of housing starts hit 685,000 – well above the levels that economists were forecasting. In the stock market, shares of homebuilders like Pulte Homes, Toll Brothers, and Lennar Corp are in a solid bullish trend. Shares of Home Depot and Lowes are also moving sharply higher as demand for their building products increase.
I don’t talk about financial markets too much because I believe your best investment opportunity is in the “real” thing – actual real estate parcels that are tangible and hold true value. But today, I want to talk about how the improving market environment for home builders affects our investments here at Ashford Capital…
Access To Capital Is Everything!
If you’ve followed our investment process for any length of time, you know that we buy distressed land from the banks and the FDIC for pennies on the dollar. In most cases, these land parcels are already developed – with roads, utilities, and zoning already complete. Our ultimate goal is to sell these parcels to a developer who will then build individual homes to be sold to residents.
One of the biggest problems with the financial crisis of the last 3 years is that companies lost access to capital. This crimped growth, caused companies to cut salaries, and basically snowballed into a historic recession.
But with the most recent economic data pointing to an improvement in the housing market, financing is becoming available to homebuilders. As stock prices for Lennar, Pulte and Toll Brothers rise, these developers have more options.
Company executives can now issue new stock at a premium price, and use the capital they raise to buy more land and build more houses. Existing investors like this approach because it improves the growth rate of the entire company. Prospective investors are willing to participate in a stock offering because they have already seen the economic and stock price improvement.
Another option for these developers is to raise debt capital. With the companies clearly showing strength, they can now issue bonds with interest rates that are attractive to investors (remember, investors are used to getting next to nothing in terms of interest) – and also conducive to growth.
And what are these homebuilders going to do with this new capital? They’re going to buy the properties that WE initially took from the banks at fire-sale prices! This is where our foresight and our disciplined buying approach really pay off!
Needless to say, I’m excited about the coming year and you should be too. 2011 has been an incredible year for us as we locked in some tremendous properties. 2012 is looking like a great year for selling some of these properties and realizing gains as values increase.
The best part is that we still have a few slots available for a couple of our best developments. Whether you’re already involved with one or more of our deals – or this is a new investment concept for you – we can still help you invest in properties that have been purchased from distressed banks or the FDIC, and are being actively marketed to homebuilders in the Atlanta area.
With many of your stock investments posting losses for this year, why not sell and realize your loss for tax purposes, and put some of your capital into an Ashford Capital project?
Wishing You a Happy Holiday…
This is the time of year when we count our blessings and cherish time with family and friends. I hope you’re able to take some time away from the busyness of this season and enjoy some peaceful time with the ones you love.
It’s also a great time of year to remember those who are less fortunate than us. Hopefully you and your family are able to find opportunities to offer a helping hand, a kind word, or a special gift to someone in need. We truly do have so much to be thankful for.
Happy holidays from all of us at Ashford Capital!
Wishing you every success,
Matthew J. Riedemann
Founder, President, & Managing Director
Ashford Capital Partners