Expert Insight

New Home Sales Shine & Housing Stocks Power Higher

New Home Sales rise nearly 16% in January. This number is the highest in 4 ½ years according to AP and Case-Shiller. The trend continues as housing rebounds.

All eyes were focused on the new Home Sales data released on February 26th as key points were being made all week long in the debate centered on interest rates, economic growth and the fed’s continued bond buying program. This has been a hot topic for many months but a renewed interest has migrated into the New Home sales as the debt markets have seen the past few weeks of selling and the equity markets have been on a steady – state move higher.

As the markets stretch higher, expectations must be met.  Now the housing data moves to center stage. Justification to continue the bond buying program is deeply rooted in economic growth and jobs data. Take this one step further with the Fed and many economic analysts believing that the housing markets are the catalyst to future economic expansion. The near snail-like growth in housing has kept many facets of the economy in check. Growth is seen rooted in housing sales and rising home prices. The need for steady increases in home sales should to lead the consumers towards increased confidence, jobs and the feeling of wealth.  The fed is betting that a strong housing sector and increasing demand will create jobs relating to construction and also builds the confidence of large and small business to ramp up hiring across the board.

Where’s the growth coming from?

According to the Case-Shiller data, 19 of 20 Cities increased in new home sales. The Composite data increased and moved into positive territory as New York fell slightly. Let’s think about for a moment. The national average and the 20 City composite that Case-Shiller tracks has moved in tandem for two years now. The data is also broken down into a 10 city composite which will show a diversion at times but not enough to cause concern the past year. Basically, what we are experiencing is the major cities that were hit the hardest have also re-bounded the fastest over the past year in both sales and prices. The major cities that did not experience such a dramatic peak and drop, cities like Dallas, Houston, New York and Charlotte have held steady. Cities like DC, Phoenix, Denver, San Diego and Atlanta has seen a nice up-tick in data as housing gained a footing to these battered cities.

20-City Composite

  We clearly see the peak and drop in data with a near flat line the past 2.5 years.

20-city

10-City Composite

  A much volatile move from the 2006-7 peak to 2009 trough.

Charts By: Case/Shiller
Charts By: Case/Shiller

National Average

It looks a lot like the 10-City. This is because those top major metropolitan areas have skewed the national average.

Case/Shiller
Case/Shiller

Look at the data for Phoenix and the volatility in the data as it comes back towards the mean of the past 2-3 years.

Case/Shiller
Case/Shiller

 Look at the steady data in Dallas where the peak and valley was nothing compared to other parts of the country. Some major cities, like Dallas and New York have kept steady. This has not offset the volatile effects of the cities that experienced the fastest growth and ultimately hit the hardest.

Dallas Data Chart ~Case/Shiller
Dallas Data Chart ~Case/Shiller

 Taking advantage of this data

 We can trade or invest in this data several ways. Think how housing growth can affect the many branches of the economy? For example, construction, housing construction, banking and retail. Use your imagination.  Sometimes, simply looking around those home construction sites gives you all the information you need to know. A simple and direct approach is to look into the housing stocks like, TOL up 3.68%, BZH + 3%, LEN +3.7% and KBH + 6.7%. Also retail support like HD + 5.7%, LOW + 1.84%, ITW +.5 %. There are two Exchange Traded Funds to watch also if you don’t want to trade one or two stocks, ETF’s like XHB + 2.89%  and ITB + 3.56 %.

Nick Pirraglia

TradersThinkTank

 

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