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Buffett's Patient Bet on Housing Recovery

On Feb. 1, market watchers turned their attention to construction spending. According to the U.S. Department of Commerce's report, this index gained 1.5% in December, outpacing analyst forecasts. This marks the reading's fifth consecutive monthly increase. In addition, the New York Times reported that construction spending is sitting at its highest level in 20 months.

Even more encouraging is the fact that it is residential construction that appears to be spearheading the industry's improvement.

This news is certainly encouraging, but I do not feel that the recent batch of data is enough to definitively indicate a turnaround. While aggressive investors may be tempted to dive headlong into the homebuilders at this time, caution is still warranted here. As Buffett has stated, oversupply continues to plague this industry.

Any bet should be small and closely monitored. Real estate investment trusts continue to be the stronger housing-related bet. Conservative and aggressive investors alike can gain ample exposure to this corner of the sector using funds like the iShares Dow Jones U.S. Real Estate Index Fund (IYR) and the iShares Cohen & Steers Realty Majors Index Fund (ICF).

What are your feelings on the housing market and construction industry's apparent recovery? Feel free to leave a comment below.

Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management owned the iShares Dow Jones U.S. Real Estate Index Fund.
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