Will Biden’s Infrastructure Plans Crush Housing – And This Stock?
“The U.S. is facing a historic supply shortage in housing, especially in the nation’s most in-demand regions.”
This statement is from Vox.
The housing shortage has already caused housing prices to increase by their fastest rate on record.
Existing homes sales prices have gone up a staggering 17.2% in only one year… This is the highest and fastest prices have increased ever.
Yes, even higher than before The Great Recession.
To find out even more about housing prices skyrocketing click here.
In today’s article – Will Biden’s Infrastructure Plans Crush Housing – And This Stock – I’ll tell you how Biden plans to fight this… And the likely effects that will have on this stock, your retirement portfolio, and the entire housing industry.
Because I’m going to update you on whether you should buy home builder Lennar to take advantage of this in your retirement portfolio.
Before I get to that though, I need to tell you how Biden’s infrastructure plan could crush the housing market… And Lennar.
In his proposed $2 trillion infrastructure plan, one of the things Biden plans to tackle is the skyrocketing price of housing.
He wants to “encourage” cities and states to remove bans on building duplexes, fourplexes, and apartment complexes in and around suburbs to provide more affordable housing for people.
And he plans to do this by offering cities nationwide access a piece of $5 billion to build these kinds of structures.
At first glance this is admirable… Even seems reasonable.
This makes sense socially on many levels… But it makes even more sense economically.
According to a 2015 study by University of Chicago economist Chang-Tai Hsieh and UC Berkeley economist Enrico Moretti, researchers find that because metropolitan areas have made it prohibitively expensive for middle- and low-income Americans to move to high-productivity areas, US aggregate economic growth was lowered by more than 50 percent from 1964 to 2009.
The above is from Vox and means if there was more affordable housing in metro areas… Economic output from 1964 to 2009 would have been 50% greater than it already was.
Again, this is fantastic.
But Biden’s plan won’t fix the problem of skyrocketing housing prices.
Even if cities change their tune to grab this $5 billion, huge regulations add even more to the cost of housing than this is likely to make up for.
Environmental impact fees, property taxes, permitting, etc.
And now you have the skyrocketing price of lumber adding an estimated $36,000 to the price of every new home built.
Biden’s proposed plan won’t solve any of these problems.
Plus, if cities do start building more affordable housing units like those mentioned above… This will only increase housing prices faster because there will be an even lower supply of newly built homes.
And that doesn’t even consider that most people want to live in single-family homes instead of apartments.
Who wants to hear kids stomping constantly above them? Or having to listen to their neighbors through the wall arguing every night if they don’t have to?
Because of these things single family home prices will continue to go up… And Biden’s plans to keep housing prices in check will fail.
Which means our homebuilder pick will keep performing well.
With this explanation, now we can get to today’s stock update on how you can potentially take advantage of this in your investment portfolio.
Should You Buy Homebuilder Lennar To Take Advantage Of Skyrocketing Home Prices?
You can see my previous articles on Lennar below…
Today, I give an update on Lennar as the housing market continues to skyrocket.
You can read the past article in full using the link above.
But let’s get to today’s update.
If you read the article above, you can see my thesis back in March was to buy Lennar for the following reasons.
- It’s the nation’s largest home builder by revenue.
- Its then 1.1% dividend.
- Its large profits.
- Its low debt levels.
- And it was cheap enough to buy.
This thesis continued to play out because since then its stock is up even more… And its now up 249.2% from its 2020 low on March 18th.
Because with home prices skyrocketing… This means the homes Lennar builds become more expensive… Which means they can sell them for higher price points to generate more revenue… Which leads to even greater profits and cash flows.
This will continue as housing prices continue to rise.
Should you be worried about a housing crash for Lennar if you do buy for your retirement portfolio?
When the housing market crashed back in 2007 homebuilders – Lennar included – got crushed because the demand dried up as unemployment and foreclosures rose.
This will happen to Lennar again whenever this bubble crashes.
That could be tomorrow, or it could be 5 years from now though. No one knows.
What you can do to protect your portfolio from this though is to put a trailing stop order on any Lennar shares you plan to buy.
Trailing stops automatically sell shares if they fall a certain percentage, and this will help protect your profits… And your downside.
Even better… Even with this gigantic rise, Lennar is still cheap enough to buy too.
Its P/E is now 11.
Its P/CF is 8.
Its forward P/E is 10.4.
And its enterprise value to operating income – EV/EBIT is 10.4.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
These metrics combined show that Lennar is undervalued right now.
And this means owning its stock does give you a large margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Lennar being undervalued right now, its stock offers you a large margin of safety… Especially when you consider all the other great things above.
Recommendation – Buy Lennar to protect your retirement portfolio. But make sure you put a trailing stop on any shares you do buy to protect your profits – and your downside – from any housing crash.
If you’re worried about these short-term risks – or Biden crushing the housing market with his infrastructure plans – look at some of the stocks below that are also great buys for your retirement portfolio.
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- Should You Buy Homebuilder Lennar As The Housing Market Skyrockets?
- Will Biden Crush This Stock – And Your Retirement Along With It?
Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.
P.S. Breaking Poll – Does Biden Need To Stop The Housing Market Before It’s Too Late? Vote Here