Housing Bottom? A turn for XHB & ITB ETF’s?
New home starts? I think we still have quite a bit of inventory to work through before home builders see any real recovery. Unfortunately foreclosures are still rising, and auctions are being held with properties being sold off to the tune of hundreds at a time. Looking through local foreclosures many of the homes on the auction block are less than 10 years old. Who needs to build right now? Perhaps there are pockets of the country that are experiencing a population shift are the key? Dallas Texas added more than 162,000 residents between 2006-2007, Atlanta 151,000, Phoenix 132,000. Seems like all warm weather areas…? These are only a few of the areas of the country people are retreating to for lower housing prices and costs of living. Perhaps their influx of people will help the new home starts as other areas will be left working through the foreclosure backlog. As always, we appreciate your input.
A Bottom for Real Estate? – HOV, URE, XHB, KBH
March 27, 2009
By: Billy Fisher
Contributor, Stock Traders Daily
Following what has seemed like an unending downturn for the sector, real estate received some rays of light this week.
As of the market’s close on Thursday, major homebuilder names such as KB Home (NYSE: KBH) and DR Horton (NYSE: DHI) had already locked in gains of 25.9% and 30.6% this week alone. Hovnanian Enterprises (NYSE: HOV) had soared 64.4% since last Friday’s close and experienced double its average daily trading volume on Wednesday.
So what initiated this week’s rally? On Wednesday the Commerce Department reported that sales of new homes in February rose for the first time in 7 months. This metric increased 4.7% to an annual rate of 337,000. Then Thursday brought an additional encouraging development for the sector when a Deutsche Bank analyst said that the stocks of homebuilder companies may be reaching a bottom.
If this development proves to be the case, it would be a welcomed sequence of events for a sector that has been in a downward spiral since peaking in the summer months of 2005. The past two years have been especially trying for those stakeholders associated with the homebuilding industry. In 2007, the SPDR S&P Homebuilders ETF (NYSE: XHB) and the iShares Dow Jones U.S. Home Construction Fund (NYSE: ITB) racked up respective declines of 47.7% and 58.0%. Last year did not turn out to be all that much better. These two funds experienced declines of another 36.2% and 41.8%.
Looking forward, it is inevitable that investors in this arena will be wondering whether or not this week’s rally is sustainable. Fortunately, the inventory of new homes hitting the market is much leaner than it has been during past years of this extended market downturn for homebuilders– it is at its lowest point in nearly 7 years. Prices of newly constructed homes have been coming down for several quarters now and mortgage rates are at record lows. A tax credit that arose out of the government’s stimulus plan for buyers who purchase a home prior to December 1st also should play a contributing role in stirring up new sales in the months ahead.
Homebuilders aren’t the only stocks looking to shift into a recovery mode. Even REITs participated in the broader real estate rally on Thursday. The Ultra Real Estate ProShares Fund (NYSE: URE) experienced a 5.5% move up the charts yesterday before closing at $2.69. “We invested in URE at $2.14,” said Tom Kee Jr., president and CEO of Stock Traders Daily. “We intend on holding onto it with risk controls in place.”
The volatility that REITs have been subjected to in recent months will likely continue to keep Kee on his toes. He will also be monitoring homebuilder stocks for trading opportunities via trading plans he has developed specifically for KBH, DHI and HOV.