Housing starts jumped 8.2% in April over March. The result surprised Wall Street and could be one of the first signals that housing markets are bottoming out.

When we look into the actual numbers - in terms of year-over-year growth - new building permits show double-digit declines for almost two years straight. However, April's data is the largest increase in 24-months, something builders are most likely rejoicing over. Within the report, though, all of the gains came from multifamily homes (apartments), while single-family homes actually declined month over month.

The Floor Plan of Contraction and Profit
Overall, contracting housing markets are shaving about 1% off of annual GDP, as witnessed in GDP growth of 0.6% in the fourth quarter of 2007 and the first quarter of 2008. (For more information, read The Importance Of Inflation And GDP.)

When we begin reading between the lines, the present scenario is really quite interesting. What we see is that in the past eight months, single-family homes have seen consecutive declines of new starts, while multifamily homes have witnessed four months (October 2007, January 2008, February 2008 and April 2008) of housing start increases.

The common sense explanation is that that, while fewer and fewer actual one-family homes are being built, savvy money has been taking the real estate downturn as an advantageous moment to purchase discounted property and build large buildings.

When real estate markets do recover (which may not be until 2009), those who invested heavily in real estate during this time, will likely see significant profits from their building bravado when everyone else was selling. It makes sense really. As the U.S. economy comes out of the slowdown, many consumers will likely be repairing their financial health at a tepid pace, while recovering from debt incurred in the tough months. These are the exact people who will likely be looking for cheaper real estate - like an apartment.

Builders who are scrambling to buy up property in the present environment could profit handsomely based on the "economic gauntlet" consumers have endured over the past year.

The Forgotten
At times like this, there's plenty of money to be made for those who invest like Warren Buffett and "buy when others are selling". Intuitively, we would probably want to look at the homebuilders as the pure plays for the real estate construction. Don't get me wrong; they're probably not a bad bet considering the Dow Jones U.S. Home Builders Index is up over 50% since the beginning of 2008. However, there's another angle to play here too: residential REITs.

• Camden Properties (NYSE:CPT), which is presently showing a forward dividend yield of 5.3%, while trading with a Forward PE of just under 14 and at 2.3 times book. The stock is down about 11% for the year, thus there certainly is risk; however, the dividend yield alone sure beats what Treasuries are paying.

• Apartment Investment & Management (NYSE:AIV) saw earnings slip negative in December of 2007. What we're talking about is a company that witnessed earnings growth of a little less than 75% per year over the past five years. Wall Street is now predicting the same company will average per-annum growth of 6.6% for the next five years. It also presently has a 5.9% forward dividend yield.

Bottom Line
The New Residential Construction report surprised analysts with a big gain in April, so the dismal estimates for REITs like Apartment Investment & Management and Camden Properties may also be surprisingly low, especially considering their dividend yields.

Considering investing in real estate? Read about th REIT and see if it's the investment for you in The REIT Way.

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hunting Elephants

    The practice of targeting large companies or customers.
  3. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!