Now, some believers in the housing recovery are spreading their bets. They are buying shares in the makers of appliances, building materials and even pickup trucks, as well as real estate sales firms and home-improvement retailers. These investments will reap the rewards of an upsurge in residential construction and home renovation, proponents say, at lower prices than homebuilding shares.
The average price of residential property in 20 large U.S. cities has risen 9.5% since the start of 2012, according to the S&P/Case-Shiller home price indexes. Building permits for single-family houses rose last month to their highest level since May 2008.
Bullish investors expect those trends to continue. They contend an improving economy and historically low mortgage rates will bolster demand for both new and existing homes, while low housing inventory will help push prices higher.
The recovery is in "the very early innings," says Russell Croft, a portfolio manager at Baltimore-based Croft Leominster Inc., which manages about $950 million in assets.
He has ridden the rally in Lennar, but now prefers investments in appliance maker Whirlpool Corp. and Ford Motor Co., whose F-150 pickup truck he says stands to benefit from increased demand for the services of contractors and construction workers. Mr. Croft says he is trying "to find the secondary or tertiary stocks that might be influenced by housing."
He likes the lower valuations of companies outside the homebuilding sector. Ford trades at just 9.9 times projected 12-month earnings, according to FactSet. Whirlpool trades at a 12.4 multiple, despite surging more than 170% since the end of 2011. Mr. Croft says he wishes he had bought more of the Benton Harbor, Mich., company.
The stocks in the Standard & Poor's 500-stock index are trading at 14.4 times profits that Wall Street analysts expect the company to report over the next 12 months, according to FactSet.
By contrast, Lennar now trades at above 20 times projected earnings, while Toll Brothers and KB Home trade at more than 30 times earnings.
To be sure, not everyone is buying the housing recovery. Some fund managers who have ridden the rise in home-related stocks warn that the rally already has played itself out.
Chip Reed, who helps oversee $9 billion in stocks as portfolio manager at Atlanta Capital Investment Managers, has considered selling stakes in paint maker Sherwin-Williams Co. and building-materials distributor Beacon Roofing Supply Inc. that he acquired around the start of 2009. At more than 20 times future earnings, the stocks look overvalued to Mr. Reed. If he sells them, he doubts he would invest proceeds in housing-related companies.
"Because the market is up so much, it's so much harder to find new [housing-related] ideas than it was at the end 2008 or early 2009," Mr. Reed says.
Others see plenty more room to run. Home prices on average are still 28% below their April 2006 peak. Some expect more homeowners to fix up their houses for eventual sale as prices increase.
Three U.S.-listed residential-construction companies have gone public this year, ending a drought of more than eight years for such initial public offerings. Tri Pointe Homes LLC, Taylor Morrison Home Corp. and William Lyon Homes all have traded higher since their debuts.
Home Depot Inc. and Lowe's Cos. each have jumped by about 60% over the past 12 months, while some investors have fanned out into manufacturers of roofing, floorboards, drywall and faucets.
"For years, we've seen no interest in families remodeling their kitchens, adding a new bedroom or putting a new deck out there," says Ragen Stienke, who manages about $3 billion in assets at Dallas-based Westwood Holdings Group. Now, he says, "We're looking for companies that will benefit from homeowners deciding that their home will be worth more in a year or two, so they want to invest in it."
As that changes, Mr. Stienke says he sees more gains ahead for stocks such as plumbing-supplies company Watts Water Technologies Inc. and backyard-decking-systems maker Trex Co.
They aren't the only potential beneficiaries. Ply Gem Holdings Inc., which makes siding, fencing, doors and other housing materials, has risen 12% since its IPO priced late Wednesday above its expected range. Plywood maker Boise Cascade Co. has rallied 39% since its February debut, and also priced above projections.
Mitch Rubin, chief investment officer at New York-based RiverPark Funds, which manages $1.6 billion, expects U.S. home prices and sales volumes to rise back to historical norms.
So Mr. Rubin bought shares of Realogy Holdings Corp., the world's largest franchiser of residential real-estate brokerages, after the company's October initial public offering. Realogy takes a cut of the commissions that brokers operating under the Century 21 and Coldwell Banker brands earn on home sales.
"There are a lot of derivative plays on housing, but this is a super-direct play," Mr. Rubin says, arguing that the shares benefit from both rising prices and transaction volume.
At Brown Advisory, which oversees $33 billion in assets, analyst Kevin O'Keefe has been buying regional-banking stocks such as SunTrust Banks Inc. and Synovus Financial Corp., betting the firms' balance sheets will improve as homes backing loans rise in value. "The housing market is one of the best investible themes out there for 2013 and for 2014 as well," Mr. O'Keefe says.
Write to Jonathan Cheng at jonathan.cheng@wsj.com and Matt Jarzemsky at matthew.jarzemsky@dowjones.com
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