Déjà vu all over again in housing!
by Mike Larson
Friday, March 23, 2012 at 7:30am
In late 2009, just a few months before the 2010 spring selling season for homes got underway, the Philadelphia Housing Sector Index (HGX) started to move. The benchmark index of housing and construction-related stocks surged from around 90.55 in November to 132.53 in late April — a gain of 46 percent.
Investors and pundits hailed it as proof positive that the housing market was finally on the mend ... that blue skies and rainbows were here to stay! But what happened next? The index flopped and chopped around for a while ... then fell off the table. Ultimate loss through October for anyone who bought the hype? 39 percent!
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In late 2010, just a few months before the 2011 spring selling season, it happened again! The HGX rallied from 94 in late November to 121 in late February — a rise of 29 percent.
So did THAT signal a lasting turn for the housing market's fortunes? Er ... no! The index imploded 34 percent shortly thereafter.
And wouldn't you know it? Investors are at it again!
They've been buying housing stocks, construction stocks, home improvement retailers, cabinet and faucet makers, paint companies, and more like they're going out of style!
Stocks like Valspar (VAL), Sherwin-Williams (SHW), Stanley Black & Decker (SWK), A.O. Smith (AOS), Masco (MAS), Home Depot (HD) are putting even high-momentum Internet companies to shame with their recent gains!
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Me? I can't shake the feeling it's déjà vu all over again — and that the 2012 version of this annual rite is going to end badly too!
What the latest housing figures do —
and DON'T — show
Why is there so much optimism about these stocks and the housing market in general? I don't know if it's the fact it's 80 degrees in Chicago and New York City. I don't know if it's just the innate optimism that prevails on Wall Street, or the happy talk from housing company executives.
But whatever it is, it sure doesn't seem justified to me. We have undoubtedly seen some improvement from the depths of the 2007-2009 recession. Home sales, home construction activity, and builder optimism have taken a modest turn for the better.
The spike in housing-related stocks is on shaky ground.
But even with that slight improvement, housing starts remain a whopping 69 percent below their bubble peak! A key measure of home builder optimism is still down 61 percent. Existing home sales? They're off 37 percent. Home prices? Down 34 percent ... STILL!
More recently, we've seen mortgage rates shoot higher along with Treasury yields. That couldn't come at a worse time, considering we're entering the heart of the home selling season. Is that why the National Association of Home Builders confidence index just registered 28 in March, instead of rising to 30 as expected? Hmmm.
And what about housing starts? They slumped slightly to 698,000 in February instead of rising as expected. Moreover, single-family starts plunged 9.9 percent — the biggest drop in a year!
Unthinkable Poised to
Slam Wall Street by 2013
"The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation."
These were the prophetic words spoken to me recently by famed economist and New York Times best-selling author Robert Wiedemer, at a private dinner in Palm Beach, Fla.
I was skeptical of his claims at first, but then I saw the chilling evidence.
Click here to see the same disturbing charts Wiedemer showed me.
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"Look out below" time for housing sector?
Sure looks like it to me!
Long story short: It's been a heck of a rally in the housing and construction sector. Some sector stocks are trading at all-time highs. Not 52-week highs, mind you. Highs they didn't even hit during the peak of the bubble — when home prices were rising at double-digit rates and construction activity was running at the fastest rate in U.S. history!
Does that make sense to you? Because it sure doesn't to me!
In fact, I believe the combination of that strong rally ... the recent rise in interest rates ... and the potential for activity to slow going forward will prove toxic to investors. If you own these stocks and have enjoyed the rally, I urge you to sell now.
I would also take gains off the table in other stock market sectors, something I've been doing in my services recently. If the recent housing strength fades, the economy will likely cool, and I don't believe the broad market is prepared for that.
Until next time,
Mike
