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Is Housing Back for Good?

30 August 2012 in Trading Ideas

Good news for housing stock bulls – the lion’s share of recent data appears to suggest that the positive momentum in home prices is on solid ground.

On Tuesday, the S&P Case-Shiller 20-City Index revealed a rise of 0.9% in June (the report is subject to a two-month lag), which easily beat expectations of an increase of 0.45%. The climb in June follows a 1% increase for May — over the last three months, home prices have risen at an annual rate of 11.3%.

This news comes on the heels of other recent bullish reports: new home sales in July rose 25.3% from a year earlier, while existing home sales were up 10.4% during the month.

In addition, housing construction data for July were strong. Housing starts jumped 21.5%, and starts for single-family homes rose 17%. Those increases were down from June, but as economist Dean Baker noted, permits for both categories hit new post-bubble peaks.

The apparent trend has certainly not been lost on investors in homebuilder stocks, who have seen most names rise steadily since last fall. The SPDR S&P Homebuilders Index ETF (XHB) has nearly doubled since early October 2011.

As for the reality-check side of things, one could certainly state that a few potential potholes continue to dot the road to semi-permanent recovery. Baker pointed out that in several cities, the largest price appreciation has been seen in the bottom one-third of the market, suggesting that prices in cities like Detroit, Phoenix and Las Vegas – among the hardest hit during the housing crash – had deteriorated to a point where speculators were beginning to jump in.

As Baker argues, this isn’t necessarily a bad thing if new owners renovate the properties and resell or rent them, but that may not be happening. In Phoenix, for example, vacancy rates have been rising, which suggests to Baker that a portion of the speculation comprises investors looking to “flip” the houses for a small profit in as little as six months. If that’s the case, Baker says, a “mini-crash” in some of these markets could be in the offing in the next year.

What’s more, let’s not forget that the cloud to July’s silver-lining new home sales figures is the harsh reality that the average price of new homes actually fell in July — to $263,200 from $266,900 – to the lowest average price so far in 2012.

It’s possible that “housing bottom” may still be a relative term.


Tags: housing