How Europe’s Financial Crisis is Helping U.S. Housing (XHB)

For the most part, the financial crisis in Europe has been a drain on publicly traded companies in America. Consider that, despite the fact the S&P 500 climbed 9% this year, revenue targets for 60% of U.S. companies came up short last quarter.

What’s worse, those meeting expectations have only increased revenue by an average of 2%. The Washington Post says that’s the lowest revenue growth, outside of a recession, in nine years.

But just as Europe had a negative impact on the U.S. economy overall, not every industry is feeling Europe’s woes.

In fact, homebuilder shares are increasing at a record pace this year in America. And, believe it or not, Europe may actually be helping the recovery.

Europe’s Pain is U.S. Housing’s Gain

You see, Europe is the world’s second-largest consumer of copper.

In the first quarter of this year, the International Copper Study Group revealed, copper usage in the EU declined 9% compared to the same period last year.

In the second quarter, global copper prices fell 9%. They even hit a 2012 low in June.

And today demand for copper is still slipping. China, the world’s largest copper consumer, also reported last month that industrial output grew to its weakest level in three years.

It’s alarming news for the global economy, since copper is often used to gauge how economies are faring. However, the news has surprisingly been a boon for U.S homebuilders.

That’s because lower copper prices make it cheaper to build homes here. Every one that’s constructed needs copper for plumbing, heating, ventilation, wiring, etc.

Simply put, cheaper copper prices equal larger profit margins for companies that build new homes.

Add in that mortgage rates are hovering around all-time lows, consumer confidence has been rising and the U.S. economy continues to slowly improve, and it makes sense why the U.S. housing market is starting to make a significant turnaround.

In fact, I bought a home in December 2010 and, so far, the value of it has increased every year since. It has been an exciting, and rewarding, investment.

And it appears homebuilders are excited, too.

A Great Start in 2012

So far this year, shares of PulteGroup (NYSE:PHM), the largest homebuilder in the United States, are up 89%. Other big names such as D.R. Horton (NYSE:DHI), Toll Brothers (NYSE:TOL) and Lennar (NYSE:LEN) have jumped 39%, 45% and 54%, respectively.

Not to mention, even though the U.S. economy is only sputtering, according to the U.S. Commerce Department, new home construction rose to its highest level in four years in June.

What’s more, just as copper prices hit a 2012 low in June, orders to move copper out of warehouses monitored by New York’s Comex and the London Metal Exchange doubled.

It’s all positive news for U.S. housing over the near term. But the industry’s long-term outlook looks promising, as well.

Just a few days ago, Bloomberg reported new home sales are still “50% below the 40-year average.”

Bottom line: The recovery still has a long way to go. There’s no doubt about that. But so do the potential gains for investors willing to put their money into the U.S. housing rebound. Don’t get caught missing the boat entirely.

Good investing,

by Mike Kapsch, Investment U Research

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