Housing Stocks: Are They Hot Again?

By Friday, January 25, 2013

Housing StocksThe housing market is well on its way to recovery. Following several years of dismal sales, high foreclosures, short sales, and declining home prices, there’s strong optimism now.

Remember when your home was your castle? We are near that stage again, as we are seeing that the housing market has some bite to it.

The current situation has vastly improved to the point where housing stocks are hot.

Triggering the buying was a combination of historically low interest rates on mortgages, lower home prices, and renewal in the jobs market. (Read “Jobs Coming Back, but Not from Overseas.”) And, as more people work, I expect the housing market will continue to strengthen, as shown by the strong housing starts and building permits trend. In December, there were an impressive annualized 954,000 starts, which was above the Briefing.com estimate of 880,000 and November’s 851,000.

Also lending support to the housing market recovery was a strong building permits reading of 903,000 in December, beating both the Briefing.com estimate of 880,000 and the 900,000 in September. The strong reading indicates that builders are expecting a good flow of buying in the housing market, and this could only bode well for homebuilder stocks.

Existing home sales came in at a seasonally adjusted annualized rate of 4.9 million, up 12.8% year-over-year, according to the National Association of Realtors. The median for home prices came in at $180,000 in December, up 11.5% year-over-year.

The S&P/Case-Shiller U.S. Home Price Index, comprising the 20 largest U.S. metropolitan cites, increased a better-than-expected 4.3% in October, representing the ninth straight up month. When prices rise, I expect more spending by homeowners, due to the increase in wealth.

The improvement in the housing market is also showing up in the results of the homebuilder stocks.

The technical analysis chart of the S&P Homebuilders Select Industry Index (NYSEArca/XHB) shows the upward trend from the October 2011 bottom to the current high. The upward break near the $27.00 level was bullish, following its breakout from some topping action.

XHB SPDR S&P Homebuilders stock market chart

Chart courtesy of www.StockCharts.com

The NAHB Housing Market Index reported a strong reading of 47 in December, in line with the Briefing.com estimate and November’s reading. What is interesting is that the reading is approaching the 50 level, which hasn’t been reached since April 2006, over six years ago.

I expect the housing market to continue to improve, especially if the jobs market and economy improve.

At this juncture, if you hold some of the hot homebuilder stocks, I would be taking some money off of the table after the run-up in the housing market stocks.


About the Author | Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »

Sep. 5, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.62%
10-year U.S. Treasury Yield 2.19%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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