Bounce or trend? That’s the question.
The dollar took a break yesterday as it met some resistance after moving up so strongly in January.
Commodities hit support that then rallied.
At least that’s one way to look at it. From a purely technical point of view all we’ve seen this week is a bounce in commodity prices on a dip in the dollar. The United States Oil Fund (USO), for example, bounced off the bottom o its four-month trading range and its 200-day moving average.
But looking at the sectors and stocks that are moving together, you could also argue that the upwards move of the last two days is a reaction to news indicating that U.S. economic activity is picking up—fourth quarter U.S. GDP (announced last week) showed 5.7% growth—and that we might finally be seeing the bottom for home builders.
D.R. Horton (DHI) announced its first quarterly profit since 2007 before stock opened for trading on Tuesday and the stock closed up almost 11% for the day.
But D.R. Horton wasn’t alone.
In the United States the entire Dow Jones Home Construction ETF (ITB) rose by 5%. And overseas James Hardie Industries (JHX), the largest seller of home siding in the United States climbed almost 4% in Australia and 2% in New York.
The move to the upside over the last two days has come on weak volume, however. What you’d expect to see if the market has turned is rising volume when stocks are advancing to indicate that the move is bringing buyers into the market.
What we’re seeing so far is a move to the upside that hasn’t convinced very many investors that it will stick around for a while.
Still a lot of FHA foreclosures to go (yesterdays article in Wash Post from FHA director et al) and also pent up supply of people waiting to sell existing homes. new home cost still over $100 per square ft for basic basic. Easy for existing homes to best if they choose. Building supplies and contractors costs must spiral in the down direction if they want to stay in business.
Speaking of liabilities. I have never thought of a home as an investment. I have to maintain the house by myself, pay taxes, insurance. Sometimes the insurance and taxes are up to half of the mortgage payment. If I lose my job, I can’t easily move to where jobs are because I am stuck in a mortgage. Even renting the house doesn’t cover the house payments. Then, when I pay my house off, I still have to pay taxes forever. Big business and government found a way to drain the middle class of all their money and then some with second mortgages. Definetly a liability. I never wanted to purchase a home, but it is one of the compromises a family makes for “stability”.
Some have argued that we are still in an environment where the consumer is deleveraging his balance sheet trying to get back to where he was. As long as home prices are still declining (and don’t forget about the ARM resets in May and June) and unemployment is high, the consumer will be having trouble coming back. However, if home prices start to rise, this may be a sign of true recovery in RE. When this will occur is anyone’s guess.
For what it’s worth, there has actually been a resumption in building at a few housing developments here in San Diego that had been sitting idle for the last two years….
Down here in South Florida I am starting to see residential construction resuming in existing projects where home building had been suspended. Also see some commercial construction. So I just bought a new house even though I have not yet sold my condo.
I’m with Craig, my thoughts exactly. Noone wants to buy a house now because the days of easy price appreciation in real estate is over. What a good time to pick up bargains. I’ve been saving since 2004 and haven’t been able to get in until now when the insanity is finally out of real estate.
Craig,
If you buy a house now, you can’t offer too low a number. If there is one house you REALLY want, lowball the offer, and wait. Wait a year if you have to. Eventually, that lowball offer will begin to look really good to the seller. Time and money is on the side of buyers in this real estate market.
Doesn’t Buffett say something to this effect: “Sell when everyone is greedy and buy when everyone is fearful”? This may be that time.
It seems some of what i am hearing here was talk about in the Rich Dad Poor DaD book. Where he puts forth the idea that the american dream of home ownership is more of a liability and not an asset.
I’m with Ed and YX. I want nothing to do with builder stocks. I’m amazed that this blip upwords occured. I don’t think it will last.
I am a long-term bear on the Builder sector, because I believe there are too many houses in US that it needs or than it can “consume”. I remember US census number: 150 million housing units v. 300 M people. That’s too much. US builders need to expand outside the US.
much of the low volume gains could be short covering?
I just can’t see home builders showing any sustainable recovery for many years, especially the Toll Bros type luxury folks.
Seaturtlelady,
The real key there is the upkeep, plus the potential depreciation in home value. Keep in mind, when you rent, you are still indirectly paying taxes and insurance through your rent.
Here is someone who believed in”American Dream” along with a lot things like Saddam’s weapons of mass destruction:
http://www.youtube.com/watch?v=kNqQx7sjoS8
Is it wrong for me to think that a home is considered a liability now rather than an asset?? I own my home but paying taxes, insurance, and upkeep each year makes me wonder if I should be renting instead!
Another reason, from the Urban Land Institute, to stay away from housing stocks:
“With so much focus on determining whether housing has finally hit bottom, little thought has been given to the future of housing, post bubble. Here’s a potentially sobering prediction: “The old ‘normal’ will not return,” predicted John K. McIlwain, senior resident fellow at the Urban Land Institute, at a presentation in Washington this week.
It must have been a grim talk. Mr. McIlwain said overall home prices will likely fall another additional 10% this year, fueling even more foreclosures and underwater mortgages, which could hit 21 million by the end of the year. With more people owing more than their home is worth “the growing number of consumers who are choosing to walk away from those mortgages suggests a fundamental change from the long-held notion of homeownership as the ultimate American Dream,” Mr. McIlwain predicts. “This disillusionment over homeownership as a way to build wealth could persist for decades to come, as those entering the housing market will be more apt to rent longer, and to place more emphasis on buying for shelter rather than investment purposes.”
In the decade ahead, he thinks home appreciation will slow to 1% or 2% annually, while the home ownership rate of 67% will fall as low as 62%. “The age of suburbinization and growing homeownership is over,” he says. That, of course, means more people will stick with renting – whether by choice or necessity. Mr. McIllwain says that housing in and around major cities will remain unaffordable for many who work there. (We’ve previously reported that some 42% of those who once purchased, but don’t currently own, do not think they’ll own again.)”
The reason why investors aren’t convinced is easy:
“U.S. housing vacancy rates remained near all-time highs in the fourth quarter, the Commerce Department reported Tuesday. For rental housing, the vacancy rate fell to 10.6% in the fourth quarter from a record 11.1% in the third quarter. For homes typically occupied by the owner, the vacancy rate rose to 2.7% from 2.6%. The home ownership rate fell to 67.2% from 67.6%, the lowest ownership rate since early 2000. Before the housing bubble burst, the rental vacancy rate had never been above 9%, and the ownership vacancy rate had never been above 2%. The data show 2.1 million vacant housing units for sale and 4.5 million units for rent, an over supply that has depressed prices and rents.”
http://www.marketwatch.com/story/housing-vacancies-elevated-in-fourth-quarter-2010-02-02
Translation: We have significant excess supply in housing, keeping housing prices low. Exactly how are home builders supposed to “grow” in this environment?
If you’re going to throw your money away on housing, you may as well invest in Fannie and Freddie. At least they’ll get government bailouts.