While house price growth has slowed, auction clearance rates continue to soar around 70% in the major cities and stamp duty concessions for first home buyers in Sydney and Melbourne are reinvigorating the lower end of the market.
This is great for those that already own homes but how can equity investors take advantage of this?
A stock for renovators
Rising house prices tend to bring out the renovation specialists. A key first step (or last, depending on the budget) in any renovation or home improvement is a new lick of paint. There’s almost no better way to get exposure to a new generation of renovators than to invest in Australia’s dominant paint brand, DuluxGroup Limited (ASX: DLX). The company’s not cheap, but has a dominant market share and international brands have thus far struggled to have any success in Australia, which should protect Dulux’s position.
A stock for builders
Building products group CSR Limited (ASX: CSR) is already up a little in 2017 as investors have sought exposure to the strong housing construction market. CSR sells a huge range of building products ranging from bricks, plasterboard, insulation, and glass to aluminium, cement and roof tiles. Being exposed to all phases of house construction is a massive plus and should see the share price strength continue.
A stock for decorators
Lighting group Beacon Lighting Group Ltd (ASX: BLX) ended last week at $1.28 after listing in 2014 at 66 cents but reaching highs of over $2 in 2015 and 2016. It could be cheap but management has flagged weak sales, which could mean things are set to get worse, however Beacon sells lighting, ceiling fans and light globes which are a necessity in most Australian homes. Today’s price could look good in the future if the company can return to old ways.
I don’t believe the theory that Australia is headed for a housing crash. The Australian banking system is well regulated and does not have the same weaknesses that led to the US housing bust during the GFC. The downside is that should the housing construction market pull back, there will be some companies that are found wanting and end up disappointing investors with lower profits and share prices.