Is the Housing Market “Home Sweet Home?”

    Investment Contrarians
    By Investment Contrarians

    Housing Market Is “Home Sweet Home"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 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 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 Price Index, comprising the 20 largest U.S. metropolitan cites, increasing a better-than-expected 4.3% in October; this number represents the ninth straight up month for home prices. When prices rise, I expect more spending by homeowners due to the subsequent rise in wealth.

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

    Technical analysis of the S&P Homebuilders Select Industry Index (NYSEArca/XHB) chart below shows its upward trend from its October 2011 bottom to its current high. The upward break around the $22.00-level was bullish due to the topping action that was evident.

    S&P Homebuilders Index Chart

    Chart courtesy of

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

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

    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.

    The post Is the Housing Market “Home Sweet Home?” appeared first on Investment Contrarians.

    By: George Leong
    Posted: January 21, 2013, 7:25 am

    Investment Contrarians

    Investment Contrarians

    Investment Contrarians provides independent and unbiased research. We are independent analysts that love to research and comment on the economy and the stock market.
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    We believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply....


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