The US housing market is about to explode, and there is one ASX share that will give Australian investors exposure.
That's according to Firetrail Investments portfolio manager Ramoun Lazar, who said that last year's government and Federal Reserve COVID-19 stimuli lit a fire under the real estate market.
"That really got their housing market started and [gained] some significant momentum through the second half of the calendar year," he said in a Firetrail video.
"That momentum was being driven by millennials coming back into the market — so first-home buyers… People in their mid-20s to around 40 years of age who haven't been active in that US housing market for some time."
If the record-low mortgage interest rates can stick around, that momentum will continue over the next 12 to 24 months, according to Lazar.
The pandemic in the US also compelled existing homeowners to spend up.
"What we saw in the US was an initial uptick in do it yourself activity. So people were just doing small repair jobs around the home, making their homes more presentable, more livable."
40 years: average age of an American house
Lazar pointed out that the typical US residential home is about 40 years old.
"So quite an old footprint for the US housing stock. As that millennial cohort start to buy houses, get married, have a family, what we're going to see is an increased level of repair and remodel activity," he said.
"And that's going to underpin spend in that renovation sector of the market or segment of the market."
There will also be a driver for new houses.
"We estimate the US needs about 1.5 million new homes every year, just to stand still," said Lazar.
"Over the last 10 years, we've seen housing starts materially below that one and a half million… The reason for that is after the 2008 housing-led financial crisis, that millennial cohort was very slow in embracing homeownership."
But now that the government and federal reserve stimulus is in people's pockets, construction activity will ramp up.
ASX share that doubles its addressable market
Remarkably, there is an ASX share that's perfectly placed to take advantage of this housing frenzy in the US.
Construction materials maker James Hardie Industries plc (ASX: JHX) is ready to double its total addressable market, according to Lazar.
"The real exciting factor we think over the next 2, 3, 5 years for James Hardie is the new product portfolio that they're about to introduce into that US housing market," he said.
"Traditionally, James Hardie has targeted that wood look market… but it's about to release a portfolio of products in the US that will target other segments of the market, such as brick and stucco. Stucco's known [in Australia] as cement render, which is a very popular exterior siding product in the US."
If James Hardie's execution takes proper advantage of the real estate boom, the world is their oyster.
"We think there are significant earnings and valuation upside potential in James Hardie from that new product portfolio."
Lazar was also excited that James Hardie's margins in the US seem to be growing.
"We've several periods now of margin expansion in their North American business, and we think that's going to continue. And what that's been driven by is a lot of self-help initiatives around manufacturing," he said.
"What that's underpinned is margins growing close to 30% in the last couple of quarters. Historically Hardies targets between 20% to 25% margin. We think that uplift is sustainable."
The James Hardie share price was up 0.91% on Friday, to trade at $44.34 at market close. It started this year at $38.74.
