homebuilder stocks
Housing Market’s On Fire; Why It’s Not Time to Buy
By George Leong for Investment Contrarians | May 22, 2013
The housing market continues to vault ahead. We are seeing strong housing starts and the flow of building permits in the pipeline. Home prices are also steadily moving higher.
The S&P/Case-Shiller Home Price Index, comprising the 20 largest U.S. metropolitan cities, increased a better-than-expected 9.3% in February, representing the 13th straight up month for prices.
Looking at the chart below, notice the S&P/Case-Shiller index is currently at its highest point since late 2008, when the subprime credit crisis was in full bloom. Home prices remain well below the levels we saw in 2006, prior to the housing market meltdown.
You can thank the Federal Reserve for creating the ideal environment for the hot housing market via its strategy of record-low, near-zero interest rates and the continued buying of $85.0 billion monthly in bonds to drive down the financing rates.
Chart courtesy of www.StockCharts.com
You can feel the housing market is ready for a bubble, but the trend continues to point higher, albeit at a slower rate and with interest rates inevitably going higher. You need to be careful; but for the time being, the housing market is where it’s at.
I would be hesitant to touch the homebuilder stocks, due to their already massive gains. The chart of the S&P Homebuilders Index below shows the steady upward trend since December 2012, as indicated by the parallel blue lines. Yet also notice that prices have been rising higher without any major adjustment back to the bottom support line since late April. Look at the area marked by the red oval: this is the downside risk to which you are exposed. As … Read More
Yet Another Housing Crisis on the Horizon?
By George Leong for Investment Contrarians | May 6, 2013
Home prices are heating up, as the flow of new homes and permits continue to steadily increase and the attraction of historically low mortgage rates motivates buyers.
The buyers that are driving up the housing market are not only the buyers of principal homes, but also the investors who are attracted to the relatively lower home prices and cheap financing.
What is interesting is that we are seeing major buying from not only the smaller investor who may dabble in an investment property, but also the large institutions and hedge funds that are getting into the swing of things, gobbling up hundreds and thousands of properties at lower prices.
The S&P/Case-Shiller index, comprising the 20 largest U.S. metropolitan cites, increased a better-than-expected 9.3% in February, representing the 13th straight up month for prices.
While the housing market is far better than it was a few years ago, when the sub-prime mortgage crisis crushed the housing market and left a trail of destruction, my view is that there may be a bubble building as much of the current surge in prices is due to the cheap money.
Just consider the S&P/Case-Shiller index and notice the major jump in home prices in the housing market. For example, home buyers in the Phoenix housing market saw home prices surge 23% year-over-year, while those living in San Francisco reported an 18.9% surge in home prices.
My problem is that much of the buying in the housing market is being triggered by low-financing costs that can inevitably get homeowners in trouble once interest rates begin to ratchet higher—and they will go higher. For instance, carrying … Read More
The Real Force Behind Cheap Housing
By George Leong for Investment Contrarians | Mar 27, 2013
The housing market has clearly reached a bottom and is turning higher. After years of dismal sales, increasing foreclosures and short sales, and declining home prices, there’s strong optimism, which has resulted in sizzling demand for homebuilder stocks.
Yet the recovery in the housing market has been helped in a great part by heavy buying by both retail real estate investors and major institutions. According to the National Association of Realtors, cash buyers and large investors account for about 32% of home purchases across the country. (Source: Timiraos, N., “Investors Pile Into Housing, This Time as Landlords,” Wall Street Journal March 25, 2013.)
Institutional buying in the housing market has been significant. One of the major buyers has been the The Blackstone Group L.P. (NYSE/BX), which has $57.0 billion in real estate holdings and another $11.0 billion available to invest. (Source: The Blackstone Group L.P. web site, last accessed March 26, 2013.) The company started a unit called “Invitation Homes” to acquire distressed single-family homes and eventually lease them.
What is happening is that, with the major contraction in home prices being driven by foreclosures, short sales, and cheap financing rates, we are seeing a heavy flow of investors headed into the housing market, taking advantage of the homeowners who were squeezed out by the subprime credit crisis, losing their homes.
While the overall housing market has strengthened, if not for the inflow of investment money, I wonder if the housing market would have recovered at the same pace.
The housing market, especially in warm climate regions such as Florida and Arizona, has also been triggered by the inflow of … Read More
An Alternative Way to Profit from Higher Home Prices
By Sasha Cekerevac for Investment Contrarians | Feb 14, 2013
With the recent data over the past few months showing home prices continuing to rise, many investors might believe they’ve missed the boat. The homebuilder stocks have seen a substantial increase in corporate earnings, resulting from higher home prices and elevated production levels; this has led to a massive increase in their share prices.
The market is a forward-looking mechanism. Investors predicted the increase in home prices that we are now witnessing and the resulting rise in corporate earnings in these homebuilder stocks.
Yet another data point just came out, finding that 87.5% of single-family homes in 152 cities had an increase in home prices during fourth quarter 2012 compared to the same quarter in 2011. The number of residences exhibiting higher home prices is increasing, as only 79.0% of metropolitan areas showed an increase in home prices for the third quarter 2012. (Source: “Fourth Quarter Metro Area Home Prices Show Strongest Performance in Seven Years,” National Association of Realtors web site, February 11, 2013.)
While housing inventories are at 12-year lows and the interest rates of mortgages remain low, home prices are set to continue rising for the near future. Firms that are leveraged to higher home prices will see significant increases in corporate earnings.
However, there are still firms that can benefit from higher home prices and that are able to continue growing their corporate earnings over the next several years. But these companies might not be the ones that come to mind for investors when they think of the real estate investment industry.
One company that I have mentioned before when it was trading much lower is … Read More
Why America’s Confidence Is Fragile
By George Leong for Investment Contrarians | Feb 13, 2013
The recession is over, and the U.S. economy is showing some encouraging signs of economic renewal.
Shoppers are hitting the malls and stores, helping to drive up retail sales. I’d stick with the top department stores, like Macys, Inc. (NYSE/M), or discounters, such as Wal-Mart Stores, Inc. (NYSE/WMT), which will continue to rebound.
The housing sector has been sizzling since the recession, with a superlative rise in housing starts, building permits, and home prices. Homebuilder stocks, including the developers of residential real estate, are sizzling on the charts—Toll Brothers, Inc. (NYSE/TOL) and Hovnanian Enterprises, Inc. (NYSE/HOV), especially.
Since the recession, the jobs market is showing some growth, with the unemployment rate holding just below eight percent. As the jobs market recovers, look to some of the staffing companies, such as Robert Half International Inc. (NYSE/RHI), Manpower Inc. (NYSE/MAN), and Kelly Services, Inc. (NASDAQ/KELYA), to deliver.
So, America appears to be headed in the right direction since the recession hit; but underneath all of the economic jargon and positive media headlines about the “Great Recovery” in America’s economic engine, there’s still a sense that many people are still trapped in economic despair, feeling the impact of the recession.
After scanning through “Diminished Lives and Futures: A Portrait of America in the Great-Recession Era,” I can see that uneasiness and worry remains a real issue in the minds of Americans. (Source: Szeltner, S., et al., Worktrends February 2013, Rutgers, The State University of New Jersey web site, last accessed February 12, 2013.)
Some of the key findings of the research were as follows:
• About 90% of the respondents remained worried about … Read More
Shocking Investment Idea No One’s Talking About—Yet
By Sasha Cekerevac for Investment Contrarians | Feb 6, 2013
One of the most important factors to consider and one of the most difficult to comprehend when it comes to the market is investor sentiment. Investor sentiment is usually far ahead of both the general public and the economic data.
A perfect example is how investor sentiment in the housing sector was clearly far ahead of the recent data showing strength for the homebuilder stocks and new home construction.
One stock that has performed quite well lately is Ford Motor Company (NYSE/F). Many times last year, when much of the public was negative on the economy and housing, Ford came out with extremely strong results. Of course, this is partially due to their pickup truck division, which is directly correlated with the boom in new home construction.
For the fourth quarter of 2012, Ford reported the highest pretax profit in over a decade, with $1.7 billion, a huge jump of $577 million from the fourth quarter of 2011. For the full year, Ford reported a pretax profit of $8.0 billion, and the firm ended 2012 with a gross cash level of $24.3 billion. (Source: “Ford Posts Highest Fourth Quarter Pre-Tax Profit in More Than a Decade,” Ford Motor Company web site, January 29, 2013, last accessed February 4, 2013.)
However, a big problem for Ford, along with many other automotive stocks, has been the eurozone. Ford’s revenues in the eurozone dropped from $33.8 billion for the full year 2011 to $26.6 billion in 2012. The company is making strategic revisions to its eurozone division.
We all know the eurozone has been in trouble for quite a long time. Recent data … Read More
Is the Housing Market “Home Sweet Home?”
By George Leong for Investment Contrarians | Jan 21, 2013
It was extremely difficult times for homeowners following the subprime mortgage implosion that helped to drag down the global economy in 2008. I recall how easy it was to get a mortgage without even having to provide an income or work history to the lenders. When an entry-level worker at McDonalds Corporation (NYSE/MCD) can get a mortgage with no questions asked, you have to wonder how long it might be before a housing bubble surfaces.
Luckily, after several years of the housing market being dragged through the mud, the current situation has vastly improved to the point where housing stocks are hot.
The declining mortgage rates have helped. The $40.0 billion in mortgage-buying by the Federal Reserve each month has driven down the cost of interest rates to record lows.
More people are working now, and with the jobs picture improving (albeit, at a slow pace), I expect the housing market will continue to strengthen.
Wherever you live, it’s clear the housing market is displaying much-improved industry metrics. We just saw another strong housing starts and building permits reading.
In December, there were an impressive 954,000 annualized starts, which is 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 the Briefing.com estimate of 880,000 and September’s 900,000. 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.
Home prices, representing another key piece of the housing market, are edging higher, with the S&P/Case-Shiller U.S. Home … Read More
Why Housing’s “For Sale” Sign Is Gone
By George Leong for Investment Contrarians | Nov 21, 2012
There were extremely difficult times for homeowners following the subprime mortgage implosion that helped to drag down the global economy in 2008. I recall at that time how easy it was to get a mortgage without even having to provide an income or work history to the lenders. When an entry level worker at McDonalds Corporation (NYSE/MCD) could get a mortgage with no questions asked, you had to wonder how long it would be before a housing bubble would surface.
Luckily, after several years of the housing market being dragged through the mud, the current situation has vastly improved to the point where housing stocks are hot.
The declining mortgage rates have helped. The $40.0 billion in mortgage-buying each month by the Federal Reserve has driven down the cost of interest rates to record lows.
There are more people working, and with the jobs picture improving, albeit at a slow pace, I expect the housing market will continue to strengthen.
Wherever you live, it’s clear that the housing market is displaying much-improved industry metrics. We just saw another strong reading for housing starts and building permits.
In October, there were an impressive 894,000 starts, according to the U.S. Census Bureau, which is above the Briefing.com estimate of 815,000 in October and the 863,000 starts in September.
Also lending support to the housing market recovery was a strong building permits reading of 866,000 in October, albeit short of the Briefing.com estimate of 900,000 and the 890,000 reading in September. The strong reading indicates that builders are expecting a good flow of buying in the housing market, and this could only bode … Read More
Why You Need to Seriously Look at Housing Stocks
By George Leong for Investment Contrarians | Oct 19, 2012
You can still buy cheap homes in America if you don’t mind living in cities like Detroit, Pittsburg, Rochester, Memphis, or Cleveland. Unbelievably, in Detroit, you can even buy a home for under $100.00 if you don’t mind living in an area that is extremely depressed.
On the other end of the housing spectrum, there’s New York City, but to live there, you would need to dip deep into your pocketbook, as the median home price was $1.1 million for the period between July and September 2012, according to Trulia.com (source: www.Trulia.com, October 18, 2012).
Wherever you live, it’s clear the housing market is displaying much-improved industry metrics. We just saw a blow-out in housing starts and building permits on Wednesday.
In September, there were an impressive 872,000 starts, 13.5% above the 768,000 estimate and the upwardly revised 758,000 in August. Also lending support to the housing market recovery was an equally strong building permits reading of 894,000 in September, well above the 815,000 estimate and the revised 801,000 in August. (Source: Yahoo! Finance with data supplied by Briefing.com.) In my view, the strong readings indicate that builders are expecting a good flow of buying in the housing market.
Moreover, representing another key piece of the housing market, home prices are edging higher, with the S&P/Case-Shiller index, comprising of the 20 largest U.S. metropolitan cities, increasing a better-than-expected 1.2% in July; this represented the sixth straight month of increases.
The improvement in the housing market is also showing in the results of numerous homebuilder stocks.
Homebuilders are continuing to deliver better results. Toll Brothers, Inc. (NYSE/TOLL) blew away the consensus … Read More
Housing Market Reality: Average Home Price in Detroit a Shocking $21,000
By George Leong for Investment Contrarians | Aug 6, 2012
I was just reading a Wall Street Journal article on real estate and was shocked to discover that the average list price of a house in Detroit is a mere $21,000 at this time. After seeing this, you may think of hauling your belongings to the auto epicenter of the U.S.; however, given that you may have a tough time finding adequate paying work, it may not be a good idea. Although, yes, you can probably work at minimum wage and buy a house in Detroit.
What I’m getting at is there are numerous places (maybe not as bad as the situation in Detroit) in America where the housing market is dirt cheap.
The media will tell you how the housing market is ramping up. That’s true as far as housing starts and building permits go, which have improved significantly since the subprime crisis in 2008, but the reality is home prices continue to be dogged by high home foreclosures and short sales. In my view, this factor will continue to cast a cloud over the housing market.
While the housing market has clearly improved from last year and the start of the subprime housing crisis in 2008 that led to the worst recession since the Great Depression, I still feel that the optimism is somewhat high and that there will continue to be hurdles ahead.
We have seen an uptick in homebuilder stocks as the optimism picks up.
The chart of the S&P Homebuilders Select Industry Index (NYSE/XHB) shows the upward trend from the October 2011 bottom to the May peak. We are currently witnessing some stalling on the … Read More
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