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How to Play the Turn Around in Housing

The U.S. housing market recovery is gaining some traction, “Mad Money” host Jim Cramer says, at least if recent data are any indicators.

New home sales increased 3.3 percent to a seasonally adjusted 343,000-unit annual rate, the Commerce Department said last week. Compared to April last year, sales were up 9.9 percent.

Meanwhile, existing home sales rose 3.4 percent to an annual rate of 4.62 million units in April to their highest in almost two years, the National Association of Realtors reported last week. To Cramer, the results were nothing short of astonishing.

The Realtors association also indicated that “a diminishing share of foreclosed property sales is helping home values.” It also said “an acute shortage of inventory in certain markets is leading to multiple biddings and escalating price conditions,” with tight supply in Miami, Naples, Fla., Phoenix, and Orange County, Calif.

“Nothing speaks more strongly of a turn than when the hardest-hit areas are now not only back, but in incredible demand,” Cramer said.

Toll Brothers, the largest U.S. builder of luxury homes, also recently posted earnings that beat expectations. It delivered a second-quarter profit of 10 cents per share, above analyst estimates of 3 cents. The homebuilder saw a 14 percent jump in home deliveries thanks to a strong spring selling season, which is seen as a sign of a housing market recovery.

To play the potential housing turnaround, though, Cramer doesn’t recommend buying homebuilder stocks, because they have already had a huge run. Instead, he’s attracted to home improvement plays that pay you to wait for the rebound to kick into full gear. Read on for his preferred plays.

By Drew Sandholm With Reuters
Posted 30 May 2012

When this story was published, Cramer’s charitable trust owned Stanley Black & Decker.

Photo: CNBC.com