The October housing market data just came out and it was much worse than expected. Readers know how I have been negative on the housing market despite those who say the sector is ripe for a rebound. I say no, at least not in the foreseeable future. The downtrend in the housing market continues as both housing starts and building permits continue to slide.
The picture for housing continues to look relatively bleak at this time. The October numbers were atrocious. The monthly housing starts have been below estimates in six of the last eight months including a very weak reading in October in which there were only 1.486 million starts, the lowest reading in over three years, and well below the estimate of 1.68 million. Moreover, the trend for building permits equally looks bad. The monthly building permits have been below estimates for the last eight straight months back to March, 2006 and have declined for nine straight months since January. The October reading was the lowest in over three years.
What makes me believe the softness will continue are rates, both interest and mortgage, which have clearly impacted borrowing and the housing market.
In my view, I would continue to steer clear of the housing market for the time being, unless we get a strong sense that the slide will end. There are better areas to put your capital. The area I continue to like is the renovation stocks, which I believe will hold better than home builders.
Home renovation companies Home Depot Inc. (NYSE/HD) and Lowe’s Companies (NYSE/LOW) both cut their respective outlooks, but I advise buying on dips for long-term investors. HD pays $0.90 in dividends for a current yield of 2.40%.
For those of you familiar with options, the Home Depot January 2009 LEAPS may be worth a look. For instance, the slightly out of the money $40 call at $4.91 has a breakeven of $44.91, $6.68 or 17.27% higher than the current trading price of $38.28. Profits arise should Home Depot trade higher than $44.91 by January 16, 2009, over two years from now.