I guess by the time you're through reading this,you'll have discovered
a big investment opportunity. Many thanks to Gordon a contributor of
Early to Rise-Investors' Edition
....About 20 million
"grown-up" children live with their parents...
Demand Unleashed
Can you imagine how much better off the US economy would be if those 20 million
"deadbeats" got jobs and bought houses?
It's not so farfetched.
The economy put them in these straits. And it's the economy that will give them
a way out.
What may surprise you is that this could happen soon... much sooner than you
think. The economy has already been throwing them a lifeline. Take a look...
NEW JOBS
November: 93,000
December: 152,000
January: 68,000
February: 235,000
March: 221,000
April: 244,000
Okay, it's not much. And most people think the news is more bad than good.
But they're not looking at it the way I am.
As you can see, the number of new jobs is slowly but surely trending up. The
last three months have been particularly strong compared to 2010. And, lo and
behold, it's the private sector leading the way. During the second half of last
year, businesses added an average of 125,000 jobs per month. This April, they
added 268,000. (Meanwhile, public sector jobs declined.)
New jobs fatten up previously starved bank accounts.
But there's much more to it than that. They can turn one of our biggest economic
weaknesses into a powerful economic stimulus.
And it's happening not a moment too soon...
I'm talking about what economists call "household formation."
Right now, it's holding us back. The percentage of 25- to 34-year-olds living at
home with their parents is at a three-decade high.
But as these adult children strike out on their own in greater numbers, it
should unleash bottled-up demand.
Take my son Nick. He's saving for a house. He's spending very little. But once
he moves into his own place, he'll have to buy furniture, appliances, cable,
electricity, home insurance. He'll probably have to make minor repairs and
upgrades.
Now multiply that by 20 million...
We currently have 116 million households in America. 20 million more is a
substantial increase.
But we won't get to that number overnight.
Timothy Wadhams is the CEO of Masco. The company installs home improvement and
building products in Europe and America. And Wadhams says that 15 million new
households will be formed by 2020.
Of course, Wadhams may be saying this just to talk up the prospects of his
company. So I looked for - and found - some corroboration.
IHS Global Insight says that by 2020 13.8 million new households will be formed.
And Pew Research Center says the normal household growth of 1 million to 1.5
million will resume beginning in 2012. Including 1 million new households this
year, that would put the number at 9-13 million by 2020.
If we assume the middle of that range, 12-13 million households will be formed
by 2020. That's over a 10% bump up.
It may not be enough to revive the housing market. But that's not the
outstanding investment opportunity I have for you.
And the Biggest Beneficiaries Are...
Our nation's soon-to-be-liberated adult children will be following my daughter
into a rental unit before they follow my son into a new home.
USC Professor Gary Painter wrote a paper on this subject called What Happens to
Household Formation in a Recession? He said that "increases in initial household
formation will disproportionately come from renters." He added that "former
homeowners who lost their homes due to foreclosure have had their credit damaged
and will likely take time to repair their scores and secure a down payment."
And he expects both of these groups of renters to jump into home ownership as
jobs become more plentiful and debts wind down.
Point is, our housebound 20-something children are about to strike out on their
own. And they will be moving into apartments at first.
As an investor, I like the REITs (real estate investment trusts) that own
apartment buildings. During the housing boom, nobody wanted to rent. So rents
and apartment building prices dropped. Now the trend is reversing. More people
are renting. And our new householders are adding to their numbers. So rents are
going up, making these REITs more money.
Very soon, home ownership will pick up too. And companies that help people
renovate and furnish their homes will be getting a bigger slice of rising
consumer spending.
That includes retailers like Lowe's and Home Depot. They're perfectly positioned
to capture this increased spending. And they should be able to ride this trend
for the next 9-10 years… at least.
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