“Three years ago, I highlighted homebuilders as a way to take advantage of a few converging trends in the housing market,” says Paradigm’s income-investing ace Zach Scheidt.

Specifically… 

• “By [Freddie Mac’s] estimate, the U.S. [was] more than 3 million homes short of the demand from would-be homebuyers,” said NPR, tracing tight housing inventory back to the 2008 housing bubble

• Meanwhile, the largest generation, millennials, started to settle down and buy houses. 

“Even with higher mortgage rates and higher home prices,” Zach notes, “there were just too many families interested in buying a home and not enough housing inventory. 

“Ironically, higher interest rates actually compounded this problem, because existing homeowners who locked in low mortgage rates were unwilling to sell.

“Why move when you’re paying a very low interest rate on your current home?

“Higher home prices have naturally benefited homebuilders,” says Zach. “Over the past two years, the iShares U.S. Home Construction ETF (ITB) is up 163%.” 

[At The Rundown in 2022, Zach gave this advice: “You could start with shares of ITB, and then do some research on the individual companies included in this ETF. Then once these stocks start building momentum, you can put more of your capital to work.” Did you follow his advice?]

Zach continues today: “Now that homebuilders have soared, investors are starting to become more bullish on this area — but at the worst possible time…

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Your Rundown for Wednesday, April 3, 2024...

Direct Hit to Homebuilders

“As the Fed prepares to cut its target interest rate later this year” — probably in June or July — “mortgage rates are also likely to drop quite a bit, possibly dragging homebuilder stocks much lower,” Zach says.

“Many homeowners have been waiting for mortgage rates to drop below 5–6% to give them a better shot at moving without a dramatically higher monthly payment. 

“All of these existing homes will hit the market while homebuilders continue constructing new housing across the country.

“The age-old laws of supply and demand are in play here,” says Zach. “It appears that the supply side will pick up and outpace demand, reversing the trend of the past couple of years.”

With that shift looming in the housing market, on Monday Zach advised members of his subscription service, Lifetime Income Report, to sell shares of Lennar Corp. (LEN).

“I’m happy with how this income play has performed,” Zach notes. “We’re up nearly 100% since buying in February 2021.

“Now is a great time to sell while the stock is still trading near all-time highs,” he says. “I think our capital could be put to better use elsewhere.”

Of course, congratulations to Lifetime Income Report subscribers on near 100% ROI! 

Zach will have other income opportunities suitable for today’s market. We’ll let you know when Zach’s service opens to new subscribers. Stay tuned…

Market Rundown for Wednesday, Apr. 3, 2024

The S&P 500 is down 0.15% to 5,195 this morning. 

Oil is up 0.60% to $85.66 for a barrel of WTI. 

Citing Kitco, gold is down 0.30% to $2,272.80 per ounce. 

And Bitcoin is down 0.25%, just under $66,000. 

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