How To Profit From A Housing Boom; Without Buying A House!

advanced insight Oct 16, 2016

Most developed countries around the world have experienced an increase in house prices, none more so than the UK and Germany. Average homes in London are now £458,000 compared to £301,000 only 5 years ago. As interest rates can only go higher, there is the over looming threat of bankrupting the poor souls who are now over stretching themselves to get on the ladder, as well as sending us back down the vicious cycle into recession.

However, with supply a worrying issue and the ‘fear of missing out’, mentality prices are likely to continue going higher although at more of a gradual rise. We've already seen house price rises slowdown in the past quarter - not that it makes a difference to the average worker in London who needs to find at least £70,000 to have the privilege of getting into debt with a bank for 25 years to finance the rest of their mortgage.

The key question is how should we profit from this and how can we profit from this?

There are many ways to take advantage without buying physical property. For example buying an ETF which tracks the Housing market has been a very good strategy over recent years. If you bought the iShares UK Property ETF (this just tracks the underlying UK property market), in 2009 your return would be over 350% today, not bad for under 5 years! There are other ways to capitalise also – investing in house builders, construction materials sector, property furnishing companies, etc.

Whilst the market may be quite mature there are still opportunities available using short-medium term strategies. Focus on house builders or companies that profit from an increasing in housing sales.

Let's take Barratt Developments, for example. They have been a strong beneficiary of rising house prices and sales, so much so, they were lifted into the FTSE 100 based on their market cap within the last year! Whilst we have come from a seasonally strong bullish period for the Household Goods & Construction sector there is potentially more to come, although we usually experience a slight dip in the May period.

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