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What was one of the best performing sectors in late 2011 … and the first several days of 2012? Would you believe HOUSING??
The Philadelphia Housing Sector Index, or HGX plunged to 73.65 in October. But then it started rising, ultimately tagging 109.65 this week. That’s a gain of 49 percent in just a couple months. Some individual stocks in the sector performed even better. Leading home builder Pulte Group (PHM), for instance, more than doubled.
So what’s going on? Is the recent string of decent U.S. economic data foretelling better times ahead? Is Wall Street awash in optimism about the upcoming spring home buying season? Does the move reflect hope about Washington’s latest whiz-bang plan to save housing?
All of the above.
But unfortunately, just like the last couple of times the pundits came out of their shells to declare a housing “bottom,” this one should prove fleeting. Let me explain why …
Meet the New Bottom,
Same as the Old Bottom
In the past few months, we’ve clearly seen some of the housing data take a turn for the better. Existing home sales rose to a 10-month high of 4.42 million units, at a seasonally adjusted annual rate (SAAR), in November. Home builder optimism increased. And housing starts rose to a SAAR of 685,000, the best level in 19 months.
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| Most of November’s increase in housing starts came from multifamily construction. |
Still, these figures are far from the robust ones we had in the single family housing market a few years ago. We were selling more than 7 million existing homes a month, at an annualized pace, back in 2005. So the latest “big gains” are really more like slight increases from the deeply depressed figures we’ve had since the market crashed.
A significant portion of the construction boost is coming from the multifamily arena, too. In other words, more people are opting to rent rather than buy homes, and builders are responding by churning out more apartments.
Another sign there’s less here than meets the high: Home pricing remains under significant pressure! One home price index compiled by the research firm CoreLogic dropped 1.4 percent between October and November. That was the fourth straight month of declines, and it left prices down by more than 4 percent from a year earlier.
The chief economist at real estate firm Zillow.com, Stan Humphries, added that he believes “We’re still three to five years away from ‘normal’ housing market conditions.”
Simply put: What we’re seeing now in the underlying housing market looks a lot like what we’ve seen for the past couple of years. Temporary upticks in sales. Temporary increases in construction. But ultimately, not the lasting, durable recovery many on Wall Street would have you believe in.
So What about the
Housing STOCKS?
That brings me to the housing stocks. They’ve been rising at a much faster rate than the underlying real estate market. The simplest explanation? All the rumors and chatter out of Washington about another big housing market “fix.”
Several days ago, the Federal Reserve released a white paper titled “The U.S. Housing Market: Current Conditions and Policy Considerations.” The report highlights many of the challenges facing housing, and discusses potential solutions. They include a renewed easing in lending standards and the conversion of some of the for-sale housing stock into rental housing.
Key officials, including Fed Governor Elizabeth Duke and New York Fed President William Dudley, followed up with a speech blitz designed to encourage Washington to more aggressively target housing. The highly unusual foray into proposed fiscal policy reflects an emerging Fed belief that lower rates and quantitative easing aren’t “working.” Monetary policymakers would instead like to see their fellow policymakers in Congress and the White House shovel more taxpayer money down the housing rat hole.
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| The Fed is pushing for even more money to throw at the ailing housing market. |
Meanwhile, recent reports say that Fannie Mae and Freddie Mac are planning to sell foreclosed inventory in bulk to investors. Those investors will then turn around and rent out the properties. The goal? Reduce the inventory of distressed for-sale homes, relieving pressure on home prices.
Clearly, this push from the Fed and elsewhere has been in the works for a little while. And clearly, it looks like big investors “got the call” early because Washington is leakier than a sieve. That helps explain why housing stocks started rallying long before the news broke.
It would also mirror the pattern we saw before each previous rescue program — HAMP, HARP, HOPE NOW, etc. — was rolled out. Chatter picks up. Proposals make the rounds. Investors who are plugged in buy early.
So what happens next?
The same as before! The reality fails to live up to the hype, and the housing stocks ultimately fall again!
Look, each and every previous plan has been rolled out with huge fanfare. But the end results have fallen woefully short of expectations. Just one example: The Obama administration’s signature HAMP plan, the most ambitious attempt to tame the housing crunch ever, has resulted in just 750,000 permanent mortgage modifications to date. That compares with original expectations of 4 million to 5 million!
So my recommendation is straightforward: If you caught this rally, sell into it. If you didn’t, and are looking to make potential gains going forward, consider select investments that rise in value as the stocks in question fall.
That’s what I’m looking to do, and you can find out more information by clicking here.
Until next time,
Mike
The Housing Sector was one of the best performers of 2011??…by what standards??..the helter-skelter of one quarter??…
You use one quarter to judge the performance of a year??..MOST Importantly, you use this to preface your argument.??..
Mike, Mike, Mike…On January 7th, 2011 the HGX was at 114.43…On January 7th, 2012 it was 108.35….kinda debunks your argument…
Please seek help from Ron Rowland about sector analysis.
Please enough of the fast and loose with statistics…you sound just like the guys and gals on TV…you know..the pundits you always accuse of playing fast and loose with statistics..
http://www.bloomberg.com/news/2012-01-12/bmw-plans-to-invest-900-million-at-u-s-plant-for-new-x4-suv.html
http://www.bloomberg.com/news/2012-01-13/hiring-logjam-breaks-as-ceos-plan-fastest-u-s-growth-since-2006.html
I’m thinking this may be a real housing recovery.Housing has been down long enough that a recovery would make sense.Many housing stocks declined over 85% from their highs,which is the typical bottoming fall from a mania.Govt is very supportive of promoting housing again.Interest rates extremely low.People love their houses and cars.All we need is a change in psychology,where people think housing prices are going up,instead of down and easier financing.I’m reading about foreigners being a huge factor in house purchases,especially in areas like Miami.I guess time will tell.
Right again, Weiss Boyz……Go back 90 days and the following is pretty much what i was writing waaaaay back then..
Bring on the downgrades……Where’s my good buddy, Michael??..Not the UK NZ one….the one that was educating everyone on the disaster of downgrades…
remember my Canada example?/..well……read ‘em and weep….EVERYTHING THE WEISS BOYS HAS PREACHED ABOUT AND WANTED IS UPON US!!!!…..
Let me quote Granpa Simpson, “ZZZZZZZZZZZZZZZZ…..ZZZZZZZZZZZZZZZZZZZZZ”
http://www.cnbc.com/id/45987749
I guess its true….the market is only rigged when it goes up…..how are my “reflexive pessimists” doing??
Everyone in the world, literally, is getting downgraded…..Zzzzzzzzzzzzzzzzz……zzzzzzzzzzzzzzzzzzzzzzzzzzzzz……..
I can’t wait to see what the boyz will come up with next…
Bulls win!!…Bulls win!!!…Bulls win!!..
Bears??..left behind….
I love downgrades for countless reasons….biggest buying opportunities coming up….if you know where to look…
The US economy is rocking and rolling….
Guess what?…my best freind from high school..who is also my CPA….(See hang with who you trust and know)…came over for dinner last weekend….
Do you know what he proposed to me for the next three years???!!!!……UNBELIEVABLE!!….his reco is for me to LOWER the rent on my tenants for the next three years!!!!!!!..
…and I’m gonna do it!!!!!!…..can you imagine the tenants surprise!!…
…riding the wave, kids…riding the wave….
……
1. SOME ONE SHOULD FIND OUT WHERE ALL THE MONEY THE FED IS GIVING OUT TO CITIES TO DEMO THEIR AFFORDABLE HOUSING INVENTORIES / CLEVELAND, OHIO, SOUTH BEND, IN., ETC, ETC. SUPPLY AND DEMAND PEOPLE JUST LIKE THE TEEN’S AND THE 1920′S. BUT WHEN BUILDING SUPPLIES AND TWO BY FOURS ARE X AND YOU CAN BUY HOUSES FOR THE COST OF BUILDING SUPPLIES THE MARKET WILL STILL BE COMING DOWN. P.S. SORRY ABOUT ALL CAPS BUT I DON’T SEE TO WELL. SO IN CONCLUSION SEE BUY IF YOU CAN STEAL! GOOD LUCK INVESTING. REGARDS, WT