After years in the doldrums, the U.S. housing market is finally showing some signs of life. One sign is the pace of new homes being constructed, which hit its fastest rate in four years in September. Another sign is the drop in vacant new homes. According to a report from real estate researcher Metrostudy, less than 30,000 vacant new homes are currently on the market. This compares to more than 100,000 on average in the pre-bubble housing days.
Even the big banks have turned positive on housing, with Jamie Dimon, CEO of JPMorgan Chase, stating recently that housing has “turned the corner,” and Goldman Sachs publishing a research note titled “House Price News Continues to be Good.”
Doug Duncan, senior vice president and chief economist of Fannie Mae, stated, “Consumers are showing increasing faith in the nascent housing recovery. Home price-change expectations have remained positive for 11 straight months.”
Further support for consumer faith in the housing recovery can be found in Fannie Mae’s National Housing Survey published in September, where 89 percent of consumers believed prices had reached bottom.
A great way for investors to play the turn in housing is through Shades Holdings, Inc. (OTCQB: SHDH), a buyer and seller of distressed real estate.
SHDH, which operates through its wholly-owned subsidiary, Suncoast REO Holdings, Inc., uses both television and online auctions to sell the properties that it acquires and rehabs.
According to the latest available data from the National Auctioneers Association, real estate auctions totaled approximately $17 billion in 2008 and are expected to account for up to one third of all real estate sold in the U.S. in the coming years. SHDH intends to capitalize on this trend by maintaining a sustained marketing campaign to drive awareness to its auction program and promoting its “foreclosed/bank-owned homes” that have been improved to meet its planned standards.
While SHDH is a new entrant to this growing market, its President and CEO, Andy Garrett, has a history of success, including the purchase, rehab, and sale of 251 homes via television auction in 2011, in which he was able to produce an average profit margin of 16.6%.
By focusing on the distressed end of the real estate market, the Company has a substantial pipeline of homes with attractive acquisition characteristics.
SHDH management has forecasted revenues of more than $36 million and EBITDA of $3.7 million for its first 12 months of operations post completion of a $2 million funding round. With a market cap of less than $15 million currently, this could put SHDH at a price-to-sales ratio of under 0.5x – a sizable discount to its peer group average of 1.0x sales.
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