Tuesday, January 19, 2010

Another sign of a housing bottom

This Bloomberg index of the stocks of major home builders is up 133% from its Mar. '09 low. That's pretty impressive, especially since housing starts are up only 10% over the same period, and the NAHB index of builders looks pretty flat. I think this is a clear instance of the market "looking across the valley" of current despair. Residential construction has fallen to all-time lows relative to the market, and is way below the levels needed to keep up with a growing population. The industry has contracted for four straight years, and this can't go on forever. We've most likely seen the bottom in housing. Of course, the recovery may take awhile and it may be tepid, but the bad news is a thing of the past. Now, it's only a question of how fast and how strong the recovery is.


HarryWanger said...

One step forward and two steps back is what comes to mind with recent housing data. First November pending home sales plunged and now the National Association of Homebuilders' housing market index is slipping, at 15 in January vs. 16 in December and what now seems like a very hopeful 19 in September. The index hit a cycle low of 8 in January last year.

Also from Bloomberg

Benjamin Cole said...

I can understand people being wary after the deepest and fastest plunge-type recession in the postwar era.
But, the Fat Lady is singing on this downturn. She is on stage, she has the mike in her hand, and she is demurely singing her first "soft" hits. Later, when the lights lower a bit, she will be belting them out, dancing dirty and bouncing her huge boobs up and down in the smokey night air.
Buy now, sell then.
Think Asia too. I see a 20-year boom there, and that's only because my crystal ball blurs up a bit after two decades.

Scott Grannis said...

Harry: yes, the current news is still awful for housing. But the market can be forward-looking, and that is what this chart is saying. The NAHB index is not forward-looking, and November sales are old news. The outlook for the future is getting better on the margin.

Benjamin Cole said...

BTW, John Bogle, founder of mutual fund giant Vanguard, has an editorial in today's WSJ worth reading.
Bogle's has some gloomy observations, but as a practical matter, it validates the point of view that "pre-herd" investing is the way to go.
Go before the flow, baby.

alstry said...

Two of its three component indexes registered one-point declines, with the index gauging current sales conditions and the index gauging traffic of prospective buyers falling to 15 and 12, respectively. The index gauging sales expectations in the next six months held even, at 26.


Does it really appear that things are improving on the margin from the builders' perspective when two out of the three components are down materially and the third is flat?

Harley Davidson's stock price has tripled since the lows as sales are evaporating, debt is skyrocketing, and they have fired most of their workforce at the largest factory.

Do you think using stock prices is a good indicator of health at the margin as Dot.Coms were the highest just before they crashed?


Scott Grannis said...

alstry: The stock market is not always right, to be sure. But I think if you look at the broad context of things, there is a decent chance the stock market is right this time. Many economic and financial fundamentals have improved. Equity valuations were extremely low. Housing starts have been way below the amount needed to keep pace with population growth--a situation that cannot possibly continue forever. Supply of homes for sale is way down. etc.

And now we have a huge political upset in MA. I see lots of bullish ingredients in the mix.

alstry said...


The Mass win was definitely a big step in the right direction.

But right now America has about $55 Trillion of total debt with an M2 of only about $8 Trillion. How do you think we will ever be able to service this amount of debt if about 500,000 people are applying for first time unemployment claims every week, few firms are hiring, government is slashing jobs, and tax receipts are continuing to evaporate as banks continue to reduce credit as fewer and fewer want or are qualified to borrow?