Jim Sinegal: After extensive research into economic and demographic conditions in the United States, we've come to the conclusion that conditions are ripe for an upturn in the housing market. We're very optimistic with respect to millennials, which is the largest generation in U.S. history. Over the next several years, this cohort is going to be entering their 30s--that's the age when household formation and homeownership rates are generally the highest.
At the same time, we have the tightest labor-market conditions we've had in several years. We're also going to see the aging of the baby boomers create new job opportunities for millennials and, at the same time, those same aging boomers are going to create millions of opportunities in health care. So, that should improve [millennials'] financial conditions.
Third, we have improving conditions in the credit market. Litigation between the banks and [government-sponsored enterprises] is coming to an end. That should result in more availability of credit for mortgages. That's a third stimulus to the housing market. So, overall, we think we're going to see a lot of activity, a lot of starts, a lot of construction, and a lot of home sales in the next three to five years.
We think there are a few good ways to play this trend. The first is Weyerhaeuser (WY), a lumber company. The second is homebuilder NVR (NVR), our favorite homebuilder. And the third is high-quality regional banks like U.S. Bank (USB) and Fifth Third (FITB), which are both exposed to the housing market as well as an upturn in the U.S. economy in general.