The off-the-radar reason for the housing boom

Jim Cramer has been absolutely perplexed by the housing market in America. How the heck could there be such vigorous spending on housing, yet the number of new homes being built remains so low?

Both Home Depot and Lowe's reported earnings this week and blew away the numbers. The quantity of materials being purchased to improve homes skyrocketed. Things such as tools and appliances for kitchen and baths flew off the shelves. How this possible, if the number of new homes is has flatlined?

Cramer finally cracked the case, thanks to the Carol Tomé, the chief financial officer of Home Depot. The answer is that these materials aren't going into new homes. They are going into undermaintained houses that have been rented out for years and are now entering the market to be sold.





A worker prepares to move a piece of pipe into place as he works on new home construction in Petaluma, Calif.
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A worker prepares to move a piece of pipe into place as he works on new home construction in Petaluma, Calif.

Tomé clarified that between 2006 and 2013 there were 3.6 million homes that entered into the rental market, and those residences are now badly in need of a remodel.

Toll Brothers echoed the same sentiments of the reduction in new homes on its conference call on Tuesday. It also confirmed that the big gains for homebuilders came from the rise in luxury homes, even as fewer total homes are being built.

"Put it all together, and it becomes clear that there's plenty of construction going on in this country, it's just not new construction," said the "Mad Money" host.

It was just boring, plain rehab construction that explained Home Depot's earnings. Finally, Cramer cracked the case! This certainly explains how there could be a housing material boom without new building in the U.S.

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However, the fact that materials are tied to existing homes could be a good thing and not so boring after all.

Cramer pointed out that if the materials were being allocated to new housing, then those new structures be would roaring right into the face of the Federal Reserve raising interest rates and crush the newfound housing boost.

"Instead, the strength in building materials is deliciously under the radar and destined to last a lot longer than anyone thinks," Cramer said.

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