Reflecting
back to the 2007/2008 recession, housing was clearly the lead cause of the
ensuing economic collapse and we at JSK Partners have always held to the belief
that the housing market would need to show significant improvement in order to
fully recoup from the economic losses that is the “great recession”. The housing industry took us in to this
malaise and therefore housing must take us out.
Given
the extremely slow progress of this economic recovery and our belief that this
country needs the housing sector to participate in a healthy and robust
restoration of economic growth, we have been encouraged by the statistics that
are emerging from this beaten down all important segment of our economy.
Seven
reasons to believe housing is recovering
1 –
The National Association of Home Builders rose two points this month to 37 from
35. This is the highest reading since March 2007, right before the crisis hit
and has been trending higher throughout the year. Several economists have
opined that the housing sector may soon start contributing to GDP and
participate in this lackluster recovery. In our opinion, this is exactly what
is needed to get economic growth back to reasonable levels.
2 –
Building permits jumped 6.8% to an 812,000 pace last week, the highest level
since August 2008. These figures have enticed several economists to project a
robust housing recovery starting later this year.
3 – A
report out of Bank of America states that housing inventory has declined more
than expected and there has been a shift to short sales.
4 –
Joe Weisenthal and Eric Platt posted their chart of the day “The ‘Housing
Recovery’ In One Unequivocal Chart” on Business Insider (I have posted the
article on our Twitter account @jskalinowski. This chart tracks how many times
the word “Housing Recovery” has been mentioned in the news over the past five
years. The chart as seen in figure 1 has spiked recently as newfound attention
is being given to this sector.
5 –
In the latest reading of retail sales shows improvement in the furniture and
home furnishing segment of the reading. Shares of Home Depot (HD) and Lowes
(LOW) have rallied significantly of late and are actually reporting stronger
trends from the worst hit housing segments of Florida and California.
6 –
The latest Consumer Price Index reading has hinted towards benign inflationary
concerns but the shelter costs component of the CPI, which represents roughly
31.5% of the index has risen faster than the overall economy for the first time
in several years. Overall inflation logged in at 1.7% while shelter costs rose
2.2%.
7 –
The market is telling us something through its pricing and volume action. Aside
from the recent rally we have seen in the U.S. equity markets and Home Depot
and Lowes, the home-builders index (XHB) and the price of lumber (see figure 4 and 5) have been running.
Bottom
Line: A stronger housing market is great news for the economy and corporate
earnings. Most importantly, it will benefit and add to the current stock market
rally.
Joseph
S. Kalinowski, CFA
Follow us on Twitter @jskalinowski
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