I don’t know how to put this to you gently…
Thanks to 40-year highs in inflation… and historic rate hikes by the Federal Reserve… coupled with out-of-this-world home prices…
The U.S. housing market is about to go up in flames!
The average home price has increased 30% since 2020.
In July 2022, the average sales price for new houses hit an all-time HIGH… $562,400!
Take a look at the chart below from the Federal Reserve Bank of St. Louis. It shows the huge spike in housing prices in the U.S… particularly since 2020.
Prices jumped to more than half a million dollars in 2022… for an AVERAGE home! That’s insane…
According to Zillow, the number of “million-dollar cities” (those with average home listing values exceeding $1 million) has tripled since 2020, bringing the new total to a record 481.
But the real estate party in the U.S. is coming to an end… Home values are about to be cut in half – or more.
As you can see in this chart from the Federal Reserve Bank of St. Louis… we’re already seeing real estate prices trending lower.
Fortune reports that the real estate market is “weakening fast.” Forbes says it’s at risk of a “multiyear collapse.”
But that doesn’t mean YOU should lose money during this real estate crisis…
I’ve handpicked three plays for you to profit from these extreme market conditions.
No. 1: Camden Property Trust
Camden Property Trust (NYSE: CPT) is one of the largest multifamily apartment community owners in the United States.
Structured as a real estate investment trust (REIT), the company engages in the ownership, management, development, redevelopment, acquisition and construction of multifamily apartment communities.
Camden is going to be a big beneficiary of the coming housing crash…
Very soon, the extremely high housing prices, extremely high mortgage rates and extremely high inflation rate are going to take a toll on the housing market.
According to National Review, the prices of homes rose more quickly in 2020 and 2021 than they did during the run-up to the 2008 housing crisis.
With high inflation (it hit a 40-year high in September 2022)… and high mortgage rates (they’ve more than doubled since early 2021)… it’s no surprise that for many people, the dream of homeownership is now out of reach.
Yahoo Finance recently reported that “housing affordability [hit its] worst level in 37 years.”
That means “wannabe homeowners” will continue to live in apartments.
That plays right into the hands of Camden.
The People’s Landlord
Camden owns interests in and operates 171 properties containing 58,425 apartment homes across the United States, with an occupancy rate of 96.9%.
Upon completion of three properties currently under development, the company’s portfolio will increase to 59,104 apartment homes on 174 properties.
Camden is already in a strong financial position… Its revenue has gone up every single year for the past six years…
And take a look at the chart below. Revenue is forecast to keep increasing for the next four years!
And its net profit margin is up a staggering 124% since 2021.
(Compare that with Redfin’s net profit margin, which is DOWN 173% – Redfin is my No. 1 stock to AVOID.)
The financial outlook for Camden is looking better than ever. It is forecast to see huge jumps in revenue and net income in the coming years.
Camden pays a $3.76 annual dividend, which is currently a yield of 3.42%.
The company is perfectly positioned to thrive during the developing housing crisis.
Add this stock to your portfolio.
No. 2: CubeSmart
My second play is in an unusual subsector of the real estate market…
This subsector is often overlooked, but it will be very profitable as the housing crisis unfolds.
CubeSmart (NYSE: CUBE) is one of the top three owners and operators of self-storage properties in the United States.
The company operates as a REIT that provides affordable, easily accessible, and secure storage space for residential and commercial customers.
CubeSmart operates more than 1,250 facilities nationwide, with more than 87 million square feet of rentable space, providing storage to over 700,000 customers.
REjournals writes that the self-storage sector “maintained steady growth throughout the Great Recession, COVID-19 and the Great Resignation.”
And Forbes calls this sector “one of the most recession-resistant asset classes.”
CubeSmart’s annualized cash flow growth rate is 14.7% over the past five years.
In spite of – or more likely, because of – the looming housing crisis, analysts are raising their earnings estimates for CubeSmart.
There are good reasons for doing so…
While the historical EPS growth rate for CubeSmart is 7.1%, its EPS is expected to grow by double digits over the next three years.
Right now, year-over-year cash flow growth for CubeSmart is 54.5%, which is more than five times higher than the industry average.
That strong cash flow is a big reason the company is able to keep raising its dividend. In December 2022, the company announced it was raising the 2023 dividend to $1.96 per share. That represented a 14% increase from the dividend payment in 2022 and marked the 13th consecutive annual increase.
With interest rates still on the rise, a positive and growing cash flow becomes critical. It enables companies to finance and expand their businesses without depending on expensive loans.
And speaking of expanding… the self-storage market is expected to reach $65 billion by 2026, up from $48 billion just three years ago.
The coming housing crisis is going to accelerate that growth. All those wannabe homeowners are NOT going to be homeowners anytime soon.
As I mentioned earlier, home affordability is at a nearly 40-year low. All of the furniture and household items in storage aren’t going anywhere.
Unfortunately, as mortgage rates ratchet higher, so will foreclosure rates. According to a recent quarterly survey, foreclosure filings have increased 104% over the same period a year ago.
Those folks – and tens of thousands of others with adjustable mortgages they won’t be able to pay – will be downsizing or returning to their parents’ houses.
They are going to need to store their extra stuff somewhere. CubeSmart will be glad to help them.
In the meantime, you should help yourself to the company’s stock.
No. 3: SPDR S&P Homebuilders ETF
This third recommendation is the reason I said “three plays” earlier instead of “three stocks.”
We’re going to profit from the downfall of overpriced homebuilder stocks by buying a put option on the SPDR S&P Homebuilders ETF (NYSE: XHB).
During the last housing crisis, this strategy delivered 1,017% in five months.
The housing market is about to collapse. It’s going to be a total industry downturn. And with this strategy, we can take full advantage of that and leverage our returns at the same time.
This ETF (exchange-traded fund) tracks the performance of the S&P Homebuilders Select Industry Index.
More than 60% of the fund is invested in homebuilders and building materials companies. More than 92% of the fund’s holdings are U.S. companies. And to top it off, the fund is fully invested, with 99% of its assets in stocks.
This fund is “all-in” on the housing industry, and buying a put option on it will give us tremendous leverage as the industry comes toppling down.
That’s why I think this recommendation could be the biggest winner of all.
The rise in mortgage rates is already hitting the housing market hard. Home sales are now dropping at their fastest pace in years.
And unless the Federal Reserve quickly reverses course – which I’m not banking on – the real estate market will take a huge hit.
The fact is… history shows that when inflation hits big the way it is now… and interest rates have to move up extremely quickly… major problems for the real estate industry in particular often follow.
Here’s another chart from the Federal Reserve Bank of St. Louis that shows the big spike in mortgage rates.
As you can see from the chart, with the Fed aggressively raising rates to combat inflation… mortgage rates are spiking!
According to Bankrate.com, the average 30-year mortgage rate is currently hovering around 7%. In early 2021, that rate was 2.6%.
An interest rate of 2.6% on a $500,000 loan is $13,000 per year… An interest rate of 7% on the same loan is $35,000 per year!
The AVERAGE American can’t afford an AVERAGE home…
There’s big trouble coming, and buying a put option on the SPDR S&P Homebuilders ETF is a great way to play it.
Housing Crisis 2023
We’re already seeing the housing market stumble.
As interest rates keep rising, home values are going to start dropping like crazy.
Almost half of sellers are already dropping their prices… but they’ll need to drop them a lot further. As I mentioned earlier, housing affordability is at a 37-year low!
Inflation is so bad that the Fed has promised more interest rate hikes are to come. That means mortgage rates will also head higher in the months ahead.
Housing affordability will lurch further out of reach for millions more Americans.
This one-two punch of high inflation and high mortgage rates is about to knock the housing market to the canvas.
The 2023 housing crisis is underway. It’s going to take years for the housing market to get back in balance.
The earlier you take advantage of this… the greater the profits will be.
I recommend taking positions in these three plays as soon as possible.