As spring arrives, the real estate market is again buzzing with activity. While the buying frenzy is still active in certain parts of the country, there are also some concerns of an overheated real estate market. This is true if you look at some of the prices in the hot metropolitan areas including New York City, San Francisco, and Chicago to name but a few.
Taking a look at the housing market, Housing Starts in February came in at 2.12 million, better than the estimate of 2.03 million, but a decline from the 2.303 million in January. Likewise, Building Permits in February came in at 2.145 million, better than the estimate of 2.113 million, but a decline from the 2.216 million in January. Should you be concerned? Absolutely; albeit the next several months will give us a clearer picture of the situation in the housing market.
Last week, the new home sales data came up short at 1.080 million, versus the estimate of 1.210 million and down from a downward revised 1.207 million in January. This area is a real concern as it was a significant decline, but, again, you need to monitor the next upcoming months to rule out a potential aberration in February. Existing home sales were strong at 6.91 million, versus the estimate of 6.40 million and up from 6.50 million in January.
In my view, there is added risk in home building stocks. An area that I like much better is the home renovation area. Just walking in my neighborhood, which is comprised of 80-year-old houses, I notice quite a few major renovation jobs on the go. I see Home Depot Inc. (NYSE/HD) building materials everywhere, which leads to the point of this article.
As I said in past commentaries, I like the home renovation stocks such as Home Depot and Lowe’s Companies Inc. (NYSE/LOW) much better than the homebuilders.
The reality is even if the real estate market slows as many pundits believe will happen, I believe people will continue to renovate their homes given the relatively attractive home equity financing options readily available to homeowners. Companies like Home Depot and Lowe’s are at the top of the heat and traded at a decent valuation.