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Housing Stocks End 2013 With a Solid Foundation

3 January 2014 in Trading Ideas

Long-term investors in housing stocks didn’t see much upside for most of 2013, but a string of positive data at year’s end capped the sector’s rally over the last four-and-a-half months.

The Housing Recovery motif has gained 6.8% in the past month, ending the year with a 20.8% return. The S&P 500 rose 2.3% in the past month and increased 29.1% in 2013.

Earlier this week, the Wall Street Journal reported that home prices have surged to record territory in some US cities, seven years after the housing bust took hold over the American economy.1

The Journal said that values are already up more than 13% above their 2007 peak in Oklahoma City and by more than 6% in the Denver metro area. Prices are back to all-time highs in 10 of the nation’s largest 50 metropolitan areas – and they’re within 5% of their highest level in San Jose, Calif., Nashville, Tenn., and Dallas.

According to the Journal, prices nationally remain below the highs of the past decade, and many of the cities that have seen the biggest gains largely escaped a boom and bust.

Home prices in some parts of the country that did experience a bust have benefited from low supplies of homes for sale and historically low interest rates that have boosted prices—and sparked concerns that prices could again be overvalued.

However, the news has also been positive at other stages of the housing ecosystem.

The National Association of Realtors said recently that its seasonally adjusted index of pending sales of existing homes rose 0.2% in November from the prior month. The November uptick was the first increase since May.2

housing recovery motifThe report was the latest signal that the market may have recovered some of the momentum lost when soaring prices and rising interest rates pushed some buyers out of the market. Pending home sales are leading indicators of demand as they tally sales at the moment contracts are signed, the Journal said.

Meanwhile, housing starts jumped 22.7% in November to their highest level in nearly six years.3 The data not only prompted several analysts to boost their GDP estimates for the final quarter of GDP, but other market-watchers were anticipating at the time that a strong showing could help convince the Federal Reserve to start easing its bond-buying program. The Fed did so that same day.

Another surge in home prices could certainly have a limited upside if it starts to dampen sales. For now, however, it seems that the market ended 2013 in a better place than where it began.

1Nick Timiraos, “Home Prices Back at Peaks in Some Areas,” WSJ.com, Dec. 29, 2013.

2Jonathan House, “US Pending Home Sales Rise 0.2% in November,” WSJ.com, Dec. 30, 2013.

3Jonathan House, “US Housing Starts Up 22.7% in November,” WSJ.com, Dec. 18, 2013.