Commercial real estate play

If you haven't bought a house or played with some housing-related stocks, you likely have missed the bottom of the housing market. It has jumped significantly higher in the past 18 months or so. See the performance of US housing construction stocks via the ETF ITB. It bottomed around Oct 2011 and has since tripled. But it seems it is cooling down right now and likely it will come down much furthter in the next few months.

So have you totally missed the recovery of the housing market? Not really. You see, the fast initial recovering has solely taken place in the residential part of the housing market. The commercial real estate is still very depressed, which tends to lag behind the residential housing by about a year. If this pattern holds true, then the recovery of the commercial real estate may start very soon. The biggest profit is usually made during the very first stage of an recovery, when a condition is becoming less bad from bad. Commercial real estate may be one area you can make some big money if you play right in terms of timing.

One company that may be worth noting to play with this trend is HD Supply (HDS). It used to be the commercial construction supply division of Home Depot and was spun off in 2007. It provides everything required by the commercial constructions as well as infrastructure needs. While it does not have a long history yet in terms of its stock performance, in the last 3 months, HDS has substantively outperformed ITB. Maybe this is an early sign that the commercial real estate recovery has really started.