Gary likes small luxuries, health care and apartments among investment sectors.
On Apartments: “last year our index of apartment REITs gained 14%. This year we look for further gains in rental apartment prices and securities related to them. Rental apartments will continue to benefit from the separation that Americans are beginning to make between their abodes and their investments. The two used to be combined in owner-occupied houses back when owners believed house prices never fall, and they hadn’t since the 1930s. So they bought the biggest homes they could finance. The collapse in house prices has shown them otherwise. A further 20% weakness in the prices of single-family houses due to the depressing effects of excess inventories will add fat to the fire.
It will take a surprisingly small shift in housing patterns to make a big difference in the demand for and construction of rental apartments. Today, there are 114 million housing units in the U.S., of which 38 million are rented. If only one percent of total households decided to move to rented units, the demand for rentals would increase by over one million, most of which would need to be newly built apartments, after current vacancies are absorbed. This is a big number compared to new apartment starts of 333,000 on average over the past 10 years. To put it another way, each 1% decline in the homeownership rate increases rentals by more than one million, to the extent those ex-homeowners don’t double up.
Rental apartments will also appeal to the growing number of postwar babies as they retire, downsize and want less responsibility and more leisure time.
See all of Gary’s picks in this edition of John Mauldin’s Outside The Box