Buy these 4 stocks now to benefit from the house price boom 

House prices are going through the roof. How will Commonwealth Bank of Australia (ASX:CBA), Australia and New Zealand Banking Group (ASX:ANZ), James Hardie Industries plc (ASX:JHX) and Boral Limited (ASX:BLD) benefit?

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Australian house prices have risen 8.3% in the past 12 months, following a 10.1% rise in the 2013/14 financial year. Sydney is leading the charge with growth of 13.7% in the year to February. Melbourne has also surged, increasing by 5.8% in the past three months alone.

The good news for investors in the share market is that it's not just home owners who will benefit from the house price boom. Four stocks in particular are set to profit.

Australia's major banks are already trading at all-time highs but if house prices continue to climb, shareholders may see the price of Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) shares rise in tandem. The benefits of increased house prices to these banks are twofold.

First, higher house prices mean that home owners and property investors need to borrow more money to purchase houses. As CBA and ANZ maintain the highest net interest margins (the difference between the rate the bank borrows money versus the rate they lend at) of the big four banks, at 2.12% and 2.13% respectively, their bottom lines are going to benefit the most from higher borrowing levels. This, of course, assumes that they adhere to reasonable lending criteria and bad debt charges do not rise from current low levels (CBA reported bad debt charges of just 0.14% last year).

Second, as house prices rise, the risk to banks' historic loan book decreases. This is because the balance of these loans relative to the value of the houses (the loan-to-value ratio) declines. In this case, even if the borrower goes into default, it is highly likely that the bank could sell the property for a high enough price to recover the amount owed. This risk profile feeds into the banks cost of borrowing, which can improve the net interest margin.

With high demand for housing fuelling the house price boom, housing supply has begun to pick up the slack. Building materials suppliers including James Hardie Industries plc (ASX: JHX) and Boral Limited (ASX: BLD) are likely to benefit from the resulting increase in construction.

Boral recently reported a 23% rise in underlying net profit in the half year to December 31 to $0.136 per share. Analysts are expecting this to translate to a full-year result of $0.269 per share, compared to last year's result of $0.218 per share. Likewise, James Hardie is expected to increase earnings from $0.44 per share last year to $0.50 per share this financial year.

Both companies are also likely to benefit from higher sale prices for their products, with Deutsche Bank forecasting increases of 8% for concrete and 20% for aggregates. Additional tailwinds may also come from the lower AUD. Boral and James Hardie both have operations in the U.S. and these earnings will be multiplied when translated to the local currency.

While these stocks may be able to capitalise on rising house prices, if you are ready to invest in ASX-listed stocks, you should know Scott Phillips, lead investment advisor of Motley Fool Share Advisor, has just announced his #1 stock pick of 2015. And right now, you can get its name and stock code for free in our brand-new investment report!

Motley Fool contributor Joshua Anderson does not own shares in any of the companies mentioned above. The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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